# ACCA F5 - Planning With Limiting Factors

16 Questions

Chapter 3

• 1.
Firms face many constraints on their activity and plan accordingly: - ________ demand - ________ skilled labour and other production resources - ________ finance (‘capital rationing’).
• 2.
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 ____________ earned.
• 3.
If there is one limiting factor, then the problem is best solved using ___ ______ analysis
• 4.
Where there are two or more resources in short supply which limit the organisation’s activities then ______ ____________ is required to find the solution.
• 5.
Linear programming is used to:
• A.

Maximise contribution

• B.

Minimise costs

• C.

Minimise contribution

• D.

Maximise costs

• 6.
Limiting factor analysis - Assumptions: There is a single quantifiable objective – e.g. maximise contribution. In reality there may be multiple objectives such as maximising return while simultaneously minimising risk.
• A.

True

• B.

False

• 7.
Limiting factor analysis - Assumptions: Each product always uses the same quantity of the scarce resource per unit. In reality this may not be the case.  For example, learning effects may be enjoyed.
• A.

True

• B.

False

• 8.
Limiting factor analysis - Assumptions: The contribution per unit is variable. In reality this may not be the case: - the selling price may have to be increased to sell more - there may be economies of scale, for example a discount for buying in bulk
• A.

True

• B.

False

• 9.
Limiting factor analysis - Assumptions: Products are not independent – in reality  - customers may expect to buy both products together  - the products may be manufactured jointly together.
• A.

True

• B.

False

• 10.
Limiting factor analysis - Assumptions: The scenario is long term. This allows us to ignore fixed costs.
• A.

True

• B.

False

• 11.
_____ is the amount by which a resource is under-utilised. It will occur when the optimum point does not fall on a given resource line. _____ is important because unused resources can be put to another use, e.g. hired out to another manufacturer
• 12.
The ______ price of a resource can be found by calculating the increase in value (usually extra contribution) which would be created by having available one additional unit of a limiting resource at its original cost. It therefore represents the maximum premium that the firm should be willing to pay for one extra unit of each constraint.
• 13.
Non-critical constraints will have _____ shadow prices as slack exists already
• 14.
Management can use shadow prices as a measure of the maximum ________ that they would be willing to pay for one more unit of the scarce resource.
• 15.
Shadow price should be considered carefully.  For example, the shadow price of labour may be calculated as \$20 per hour.  However, it may be possible to negotiate a _____ shadow price than this.
• 16.
If more of the critical constraint is obtained, the constraint line will move outwards altering the shape of the ________ region.  After a certain point there will be little point in buying more of the scarce resource since any non-critical constraints will become critical.
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