A limiting factor is a resource that has limited availability during the period, and there is insufficient ability to meet all the demand. Where there is a limiting factor, profit is maximised by choosing the combination of products with the highest contribution per limiting factor... Any business which sells a manufactured or assembled product can choose to either (1) manufacture itself, or (2) buy the product or assembly services externally. This decision is more commonly referred to as a make or buy decision or outsourcing.

The following information is available about Alba company:

Alba Manufactures two products A and B using the same raw material for each product.The annual demand for product A is 18000 units and demand for B is 16,000 units. The Variable production cost for Product A was OMR 22 and Product B has a variable production cost of OMR 32. Product A requires 7 KG of raw material per unit while product B requires 16Kg of raw material per unit. Raw material available was 180,000 Kg. Same grade of laboor was used to manaufacture A and B. A uses 5 hours of labour per unit While B uses 6.5 hours of labour per unit. Total labour hours available were 200,000 hours. An outsorcing company can supply both the products and has quoted prices of OMR 36 per unit for A and OMR 52 per unit for B.

a) What do you understand by limiting factor, based on the above information of Alba company which resource ( labour or material) is limited and why? Explain

b) How many of each product A and B should be manufactured in house to maximise profit?