Chap 13

# Allotting the scarce resource the lathe weekly demand

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Unformatted text preview: ty to make Webs. Limited Resources Limited Let’s see how this plan would work. Allotting the Scarce Resource – The Lathe Weekly demand for Highs 2,200 units Time required per unit x .50 minutes Time required to make Highs 1,100 minutes Total lathe time available Time used to produce Highs Time available for Webs Time required per unit Production of Webs 2,400 minutes 1,100 minutes 1,300 minutes x 1.00 minute 1,300 units 14-40 Limited Resources Limited According to the plan, Martin will produce 2,200 Highs and 1,300 Webs. Martin’s contribution margin looks like this. The total contribution margin for Martin, Inc. is \$64,200. The total contribution margin for Martin, Inc. is \$64,200. Any other combination would result in less contribution. Any other combination would result in less contribution. 14-41 Theory of Constraints Theory Binding constraints can limit a company’s profitability. To relax constraints management can . . . Outsource Retrain employees Work overtime Reduce non-valueadded activities 14-42 Uncertainty Uncertainty One common technique for addressing the One common technique for addressing the iimpact of uncertainty is mpact of uncertainty is sensitivity analysis - a way to determine sensitivity analysis - a way to determine what would happen in a decision analysis if what would happen in a decision analysis if a key prediction or assumption proved to be a key prediction or assumption proved to be wrong. wrong. 14-43 Expected Values Expected From the last example, recall the the contribution margin for Webs was \$24 and \$15 for Highs. Due to uncertainty, assume Martin has the following probable contribution margins for the two products. Webs Highs Martin would use the expected value Martin would use the expected value contribution margins in its decision about contribution margins in its decision about utilizing its limited resource - the lathe. 14-44 Other Issues in Decision Making Other Incentives for Incentives for Decision Makers Decision Makers Short-Run Short-Run Versus Versus Long-Run Long-Run Decisions Decisions 14-45 Other Issues in Decision Making Other Pitfalls to Avoid Sunk Sunk costs. costs. Allocated Allocated fixed costs. fixed costs. Unitized Unitized fixed costs. fixed costs. Opportunity Opportunity costs. costs. 14-46 End of Chapter 13 End 14-47...
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