Mohd Shukri PM_F5 Notes (Limiting factor)
Learning outcomes Example past exam questions Notes
Identify LF in a scarce resource situation
and select an appropriate technique
Determine the optimal production plan Q32- Section C – Sept 2016
where an organization is restricted by a
single LF
Formulate and solve multiple scarce
resources problems using linear
programming graphs and using
simultaneous equations
Explain and calculate shadow price (dual
prices) and discuss the implications on
decision making and performance
management
Calculate slack and explain the Q9 Section A – Sept 2016
implications of the existence of slack for Q32 Section C – Sept 2016
decision making and performance
management.
1. Limiting factor (LF)
Definition of LF If there is at least 1 resource that is more restrictive than others
1 LF - Using contribution/limiting factor (only for rank purposes)
- Calculate using contribution (MC are applied)
> 1 LF - Using linear programming
- The graphical method or simultaneous equations
Quick test 1:
• XYZ Co have 2 products, X and Y
• Both products need to pass 2 departments, shaping and coloring
• Organisation’s objective is to maximise profits
• Product X sold for $1.50 and the VC per unit is $1.30 c/u = $0.20
• Product Y sold for $2.00 and the VC per unit is $1.70 c/u = $ 0.30
Machine hours required ?
Shaping hours Colouring hours
Product X 0.06 0.04
Product Y 0.08 0.12
There is unlimited demand for product x but demand for product y is limited to 13000 units per annum.
The machine hrs available in each dept are resticted to 2400 per unit.
Requirement:
Find the optimum production plan by using:
a) graphical method?
b) simultaneous equations?
1
Mohd Shukri PM_F5 Notes (Limiting factor)
1) shaping hrs;0.06 x + 0.08 y ,< 2400
colouring hrs ;0.04 x + 0.12y ,< 2400
Solution (graphical method): y ,< 13000
Step 1: Establish the constraints
Step 2: Construct objective functions, (C: 0.2x + 0.3 y
Step 3: Use step 1 to plot the graph by using what if X=0 and Y=0
Step 4: Plot the graph
Step 5: Establish the feasible region
Step 6: use step 2 to find iso-contribution line
Step 7: Find the optimal production plan by using a ruler
A
B
C
feasible region
C = 0.2x + 0.3 y = 0.06 (0.2 x 0.3) x 10000
1) 0.06 x + 0.08 y = 2400 = 6000/2
= 3000
when x = 0, y = 30000
when x = 40000, y = 0 Iso- contribution line;
2) 0.04 x + 0.12 y = 2400
when x = 0, y = 20000
when x = 60000, y = 0
2
Mohd Shukri PM_F5 Notes (Limiting factor)
Solution (simultaneous equations):
Step 1-5: Same as the above
Step 6 : Look at the intersection point between line
Step 7 : Calculate the value of x and y at each of point (ex: B, C and D)
Answer: Point B
y = 13000 C = 0.2 x + 0.3 y
0.04x + 0.02y = 2400 = 8100
0.04x+ 0.12(13000) =2400
0.04x = 840
x = 21000 , y = 13000
C = 0.2 x +0.3 y
Point C = 8400
0.06 x + 0.08 y = 2400
0.04x + 0.12 y = 2400 ( x 1.5) = 0.06 x +0.18 y = 3600
0.18 y - 0.08 y = 3600 - 2400 0.06 x + 0.08 (12000)= 2400
0.1y = 1200 0.06 x = 1440
y = 12000 x = 24000
Point D C = 0.2 x + 0.3 y
= 8000
x = 40000
y=0
0.06 (40000) + 0.08 y = 2400
0.08 y = 0
y=0
3
Mohd Shukri PM_F5 Notes (Limiting factor)
2. Slack and surplus
Slack = occurs when maximum of availability resources or other constraint factor is not used
Surplus = occurs when more than a minimum required is used
Quick test 2:
• ABC Co makes 2 product C and D which generated contribution of $5 and $7.
• Product C requires 3 machine hours, 16 kg materials and 6 labour hours.
• Product D requires 10 machine hours, 4 kg of materials and 6 labour hours.
• 330 machine hours, 400 kg materials and 240 labour hours are available
• At least 12 product C must be made.
• Optimal solution found (not shown here the calculation) was 10 C and 30 D.
Requirement:
Determine whether the constraints are binding or there is slack.
3 C + 10 D ,<330 hrs 16C + 4D ,< 400 kg 6C + 6 D ,< 240 labour hrs
c ,< 12
Solution: Extra question; D ,> 12
Step 1: Establish the constraints
Step 2: Substitute these values into the equations
Answer: Machine time - binding/slack?
3 C + 10 D = 330
3(10) + 10(30) = 330
Therefore, the constaint is binding.
Raw materials - binding/slack?
16 C + 4 D = 400
16(10) + 4(30) = 280
Therefore, there is slack of 120 kg of raw materials
Labour – binding/slack?
6 C + 6D = 240 Therrefore, the constraint is binding.
6(10) + 6 (30) = 240
*If a minimum quantity of resources must be used and more than quantity is used (at the
optimal solution), there is a surplus.
* Ex: Optimal production 30 D but D ≥ 12. Therefore, a surplus of 18 D.
Answer:
1. 3C and 10 D ≤ 330
16C + 4D ≤ 400
6C + 6D ≤ 240
D ≥ 12, C ≥ 0
4
Mohd Shukri PM_F5 Notes (Limiting factor)
3. Shadow price (dual price)
Definition: Extra contribution/profit which would be created if there is 1 additional extra unit
of the LF
Quick test 3:
By using the same example as above, calculate if there is one extra hours in:
a) Shaping department
b) Colouring department
Solution:
Step 1: Find the two constraint lines
Step 2: Calculate the amount of X and Y by using simultaneous equations
Step 3: Subtitute step 2 into Objective functions, (C:
a) shaping dept Answer:
0.06x + 0.08 y = 2401 1. $0.50
0.04 x + 0.12y = 2400 2. $3
x = 24030
y = 11990
C = 0.2 (24030) + 0.3 (11990)
= 8403
Therefore, shadow price =
