Question

Use "LINEAR PROGRAMING TECHNIQUE " to explain limiting factor with several constraints ( 15 marks)

NOTE : LINEAR PROGRAMING SHOULD BE SHOWN IN DETAILS

Answer 1

LIMITING FACTOR ANALYSIS

Decision making is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions. Decision making is very much important for a business.it is one of the basic functions of management. There are many techniques which help management in the process of decision making. One of the important techniques is marginal costing. there are some situations where marginal costing can be applied. One of the situations where marginal costing is applied is limiting factors. Limiting factors also known as key factors or principle budget factors or governing factors which put a limit to the capacity of an organisation and stand in the way of accomplishing a desired objective or prevent indefinite expansion or unlimited profits. every business units will have some limiting factors. While making decision the management should consider those factors. Limiting factors or key factors actually limits the production and profitability. It is the duty of the management to prevent or reduce the chance of those factors. The profitability of the business can be finding out by analysing the key factors. The application can be based on the number of key factors existed on the production, if there is only one factor then single key factor analysis can be done. If there are more than one then linear programming can be done. The application of linear programming is based on the number of products. There are several methods comes under this method

LINEAR PROGRAMING

It is a mathematical technique used to identify best use of resources. It can be used for the calculation of limiting factor or key factor analysis.Linear programing helps to determine the optimum mix of production with maximum profit when there is shortage of available resources.It can be applied to solve financial problems involving multiple limiting factors.ie if there are more than 2 alternatives ,then linear programming can be applied.

Methods

a) Graphical Method

b) Equation Method

whatever method is applied,before that they have to identify objective function and constraints

Objective Function

Objective Function is an equation that defines what you want to achieve by solving the financial problem.

constraints

these are the limiting factor which reduces the profit of the firm

Constraints have to be 'programmed' into a linear programming problem in the form of mathematical expressions so that the optimum solution is within feasible limits.

Examples of constraints are

1-Limiting factor constraints

2-Demand constraints

3-Minimum Supply constraints

4-Non-negativity constraints

STEPS OF LINEAR PROGRAMMING

1-Choose the unknowns.

2-Write the objective function.

3-Write the constraints as a system of inequalities.

4 -Find the set of feasible solutions that graphically represent the constraints.

5 -Calculate the coordinates of the vertices from the compound of feasible solutions.

6 -Calculate the value of the objective function at each of the vertices to determine which of them has the maximum or minimum values. It must be taken into account the possible non -existence of a solution if the compound is not bounded