# Key Factor Analysis

## Key Factor Analysis

Discuss Key Factor Analysis within the Financial Management ( FM ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; MARGINAL COSTING KEY FACTOR ANALYSIS PRODUCT MIX OPTIMISATION Definition :- A key factor is defined as the factor in activities ...

 Key Factor Analysis
Sunanda K. Chavan

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Posts: 6,680
Join Date: Jul 2010
Key Factor Analysis - September 8th, 2010

MARGINAL COSTING

KEY FACTOR ANALYSIS

PRODUCT MIX OPTIMISATION
Definition :-

A key factor is defined as the factor in activities of an undertaking which, at a particular point of time or over a period, will limit the volume of output.

Purpose Of Key Factor Analysis

Key Factor Analysis is governed by both Internal And External Factors i.e. Actual And Potential.
It helps in calculating the profitability for the product.

Profitability = Contribution
Key Factor

Examples Of Key Factors

Sales
Materials
Labour
Financial Resources
Management
Steps For Key Factor Analysis
First identify the Limiting Factor(s).

Calculate the volume of resources required to produce enough units to satisfy sales demand.
Calculate the volume of resources available.
Compare the two totals
.

If (1) exceeds (2) there is a Limiting Factor.
Situations For Analysis
Key Factor Analysis is done under 2 situations:-

When there is only one limiting factor.

When there are more than one factors.
Key Factor Control
Increasing Labour Supply.
Extending Production Capacity.
Increasing Warehousing Capacity.
Increasing the Finance or Reducing the Need for Finance.
Rhine autos

SOLUTION:-

Is Profit Maximization the only thing that a company looks in for ?

PRODUCT MIX OPTIMISATION
Product Mix Optimization
Definition:-

Product Mix Optimization means selecting such a combination of the products for production which will give maximum profit to the organization.

Determinants Of Product Mix Optimization

Utilizing resources in their most efficient and productive manner.

Providing favorable cash flows.

Maximizing profits in the short and long run.

Satisfying current demand trends and preventing oversupply situation.

Objective Of Product Mix Optimization

To Maximize Contribution.

To cope up with Demand, Material and Capacity constraints.

To know whether the product is competitive in terms of price and quality.

Which combination of products will give company highest profits.

Steps for determining Optimal Product Mix

Analyzing Demand Trends.

Cost of Production Analysis.

Developing a linear programming analysis.

ILLUSTRATION:-

AMBIKA CONDIMENTS BRING 2 PRODUCTS SUCHI AND RUCHI. MANAGEMENT HAS THE OPTION TO ALTER THE PRODUCT-MIX OF THE 2 PRODUCT FORM OUT OF FOLLOWING OPTIONS:-
MARGINAL COST STATEMENT OF TWO PRODUCTS:--
OPTION IV GIVES HIGHEST PROFIT SO IV PRODUCT MIX IS RECOMMENDED.
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