1 Planning with one limiting factor Limiting factor analysis was covered in F2. In F5 the main difference is that the examination contains written questions so issues can be examined in more depth with scope for discussion. With linear programming the F5 syllabus also includes new aspects not seen before in F2.
1.1 Limiting factors
Firms face many constraints on their activity and plan accordingly:
§ limited demandwww.Examw.com
§ limited skilled labour and other production resources
§ limited finance (‘capital rationing’).
However, examination questions may focus on the problem of scarce resources that prevent the normal plan being achieved, e.g. a firm is facing a labour shortage this month due to sickness. How should its production be revised?
The usual objective in questions is to maximise profit. Given that fixed costs are unaffected by the production decision in the short run, the approach should be to maximise the contribution earned.