Chapter 9 Limited Resource Decisions

Chapter 9 Limited Resource Decisions - 4/19/2011 Chapter 9...

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Chapter 9 Resource Allocation Decisions So far we have made an assumption that managers were able to acquire as much materials and hire as many qualified employees as needed to produce products for sales. In other words, there have been no restrictions on quantity for a company to buy. We know that in reality, this is not always the case. Acquiring sufficient resources is necessary for profitable operations, but when they are not available, managers are forced to make decisions of which product will be manufactured in order to best use the limited resource. Limited Resources Managers often focus on one key factor: Which product will generate more 'profit'? When a manager is faced with limited resources, i.e., a production constraint , only a limited number of inventory units can be produced. To determine which products should be produced, the key is to determine the contribution margin per unit of the constrained resource. Examples of Constraints Manufacturing companies often have shortages of particular resources that must be used in production. Three common limited resources are: Limited skilled labor - There may be only a few qualified employees that are trained to perform a task in the production cycle. This limited resource is labor hours. Limited production materials - Suppliers may back order materials, so a manufacturing company's production facility cannot produce all the products needed without materials. This limited resource is materials measured in terms of pounds, ounces, yards, or other
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This note was uploaded on 04/20/2011 for the course ACC 101 taught by Professor Xyz during the Spring '11 term at Ohio State.

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Chapter 9 Limited Resource Decisions - 4/19/2011 Chapter 9...

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