Question

Nar Limited manufactures a range of cable products for the electronics industry. The
company has been notified of an upcoming scarce availability situation in relation to a raw
material called Rhond’, a metal used in the production of three of the company’s cable
products. The maximum availability of this material will be restricted to 15,000 metres in the
upcoming quarter.
You have been asked by the production manager to make appropriate changes to the
production budget for these three cable products and have received the following resource
usage information for each product:

Note Cable X 300 metres Cable Y 250 metres Cable Z 500 metres Length of 1 production roll Resources required to make 1 roll VARIABLE COST ITEMS Materials Rhond Plastic Labour time 2 2 3 315 metres 6 kilos 12 hours 260 metres 5 kilos 12 hours 505 metres 12 kilos 36 hours FIXED COST ITEMS Machine time 4 24 hours 24 hours 36 hours

1. Each type of cable is produced in standard lengths as indicated in the above table. It is not
possible to produce any other roll length due to the need to comply with industry
standards.
2. Each production roll of cable requires a length of ‘Rhond’ which includes a waste
allowance. The amount wasted is sold for scrap and cannot be used to make up other rolls.
Rhond costs RM20 per metre and plastic costs RM10 per kilo. (Scrap proceeds can be
ignored for the purposes of this question).
3. Labour is charged at a rate of RM13 per hour.
4. Machine time is charged at a rate of RM30 per hour.

• The company is contractually obliged to supply 1,500 metres of each type of cable to a key
customer in the forthcoming quarter. This contract cannot be broken despite the shortage of
‘Rhondium’ and must be given top priority ahead of other sales orders.
• The maximum anticipated demand for each type of cable in the forthcoming quarter
(including the 1,500 metres of each type of cable detailed in the previous note) is as follows:

Required:
a) Briefly outline the meaning of the term “limiting factor” and explain how an
organisation constrained by “limiting factors” should determine optimal production
levels.
b) Compute the optimal production levels of each type of cable for the upcoming quarter
and the closing quantity of ‘Rhond’ remaining in stock (if any) at the end of the
quarter.

Answer 1

Meaning of Limiting factor

factors that limit the ability to produce products, such as the availability of Raw material in our question , It may not be possible provide desired output due to Scarce of Resources available. and factor which restrict output is called as Key factor or limiting factor.

Determination of optimal production level

When there is only one scarce resource, key factor analysis is used to solve the problem.Options must be ranked using contribution earned per unit of the scarce resource.

Three steps are used for detemining the optimal production level

Step 1: - First determine the limiting factor

Step 2: - Rank the options using the contribution earned per unit of the scarce resource

Step 3: - Allocate resources According to the ranking as rank one to option which is giving highest Contribution per unit.

Part b is solved in slides. please go through that

Steeet Panticulars Lamoont in Rm) y Cabel & Cobel y l cabel 2 Selling Price 12186 10126 15738 Variable cast Material Rhond fam., 6300 Plastic (Rm 10 ferme) 5200 10.00 so 50 120 Labour (RM 13 Pertal 156 156 468 contribution for Roll 5670 4720 5oso RRod Natrial used Rey Roll 315mts 260mth 505 ML contribution per unit of Rrond (m Rm) 18 7 18.15 10 Rank to supply I I

roet 2. computation og optimal Boduct mix Cabel z 4 Pauticulars Cabent Cabel bely rasminimum obliged Suppy | 1500mAh 1Soome 1500 mL (6 meter per Roll used 300 m 250 mL 500mos No. of Rolls Requise to suppyptomikey 5 Rosts 3 holls (a Ib) Raw material wed 315 ms 260 mk 505mith Deu Roll & Rolls Ikaw material utiliza in making obligad sopply 1575 | 1560 mos mith 1515 mtr

Skeet 3. 15000 meters Total quantity of Rhond arailable 4650 meters Raw material wed in Making obliged Supply ( 1575 mts + 1560 mrs t 1515 m) 10350 Meky Balance material can Be utilized in mating Supply which will give hignest contribution in in making label y Maximum Demand of cabely [3500 mts - 1500 mk) Balance Material uplized for Production cabel X 82 utized for cabel X (2000) mar 8350 mAh 5100 mAh 300 mAh (6600 mt. sroma Stilized for cabel z Closing quantity of Rhond in stock 250 mtr

Please give a positive rateing .