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15and16_OverheadsForChen0 - What are constraints Why do we...

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ACCY 302 (Chen) Fall 2009, Classes 15 & 16 1 Objectives for today and next class What are constraints? Why do we care? How do constraints affect decisions & control systems? Theory of constraints Analyze LOTS of situations to identify constraints and their impact on decisions
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ACCY 302 (Chen) Fall 2009, Classes 15 & 16 2 Constraints What are they? Limitations in resources or demands Internal...e.g.: total capacity in units bottlenecks in production limitations on inputs (labor hours, machine hours, scarce raw materials) External...e.g.: market demand: total units total dollars uncertainty (risk!)
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ACCY 302 (Chen) Fall 2009, Classes 15 & 16 3 Constraints  (continued) Why do we care? 1) Remember relevance? loose vs. binding constraints 2) To act in the best interest of the principal, the agent should: select the decision alternative with the greatest net benefit to the firm... ...based on the existing resources and economic environment.
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