Single limiting Factor Profit Maximization

Single limiting Factor Profit Maximization

Single limiting factor means there is only one constraint. Profit can be maximized with single limiting factor by maximizing the total contribution. Maximization of contribution involves three steps.

1.    Maximizing Contribution

Maximum contribution may be attained by achieving maximum contribution from the use of scarce resources i.e. utilization of resources in a way that those resource would provide maximum contribution.

2.    Priority Ranking

Product should be ranked to attain maximum contribution from the scarce resource. The ranking should be done on the bases of contributing earned by product in relation to scarce source i.e. contribution/scarce source.

3.    Production on bases of ranking

Organization should product the product on the bases of priority ranking. It means the product has fist ranking should be produced first, and if scarce resource are still available then 2^nd product should be produced. Production will go on unless all scarce resources are utilized.

Concept of Limiting Factor

Concept of Limiting Factor

Limiting factor is factor which put a limit to production activity. Organization would love to produce to meet it customer demand for profit maximization. However, due to limiting factor it would not be possible.

Example of Limiting Factor

Examples of limiting factor are shortage of labour, shortage of material, shortage of machine hours.

Limiting Factor Types

Limiting factor can be categories into single limiting Factor & multiple limiting factors. In case of single limiting factor, there is only one constraint, while in case of multiple limiting factor, there are number of limiting factor which exist at same time.

Limiting Factor identification

Limiting factor situation can easily be identified with simple budget techniques i.e. how much resources are available against how much resources are required. The next step is to identify the number of limiting factor i.e. whether a single limiting factor or multiple limiting factor.