Summary
Summary Optimisation
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OPTIMISATION,Intro
• In the short term sales demand may be in excess of current productive capacity
o Example : output may be restricted by a shortage of labor, materials, equipment, machine hours etc
o This thus cause SHORT TERM CAPACITY CONSTRAINTS
• Capacity cannot be easily extended in the short term and decision must be made as to how the available
capacity can be optimally applied to MAXIMISE company profits
How to maximize company’s profits
1) Optimal product mix 2) Buy more of the scarce resources at a higher
price
- When product mix decisions are made , a - Once the optimal production levels are
company must determine an optimal product determined, management may attempt to
mix OR production plan obtain additional scarce resources
- EG - This however many not be necessarily available
How many pf which product must be (scarce resources) at the same cost at which it
manufactured to utilize scarce resources in the was ORGINALLY obtained
most profitable manner
, OPTIMAL PRODUCT MIX
➔ Optimal production plan : must be determined in order to maximize company’s profits when product mix
decisions are made (when capacity constraints apply)
STEP 1 : Identify limiting factors
STEP 2: Determine production preference ranking
STEP 3 : Determine the optimal product mix
STEP 4: conclusion
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