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What is Constraint?

   

Added on  2020-11-02

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What is constraint?The constraint defined relate to the short term and can regularly be eliminated in the long term. Further, the constraints are anything that prevents the organisation from achieving its higher performance. For example, in manufacturing plant process, constraints slow down assembly line production, gumming up the works so that labour can’t produce more as many units as they need. When there are resource constraints, the objective to be applied is establish the optimum output within the constraints that maximise the contribution margin and, thus, profits.what is meant by decision making with constraints?When there are resource constraints, the objective should be to establish the optimum output within the constraints so as to maximise the contribution margin and, thereby, profits. These resource constraints could be labour, materials or available machinery.Why fixed costs should be excluded?Normally, total fixed costs remain unchanged or constant for all volumes and total variable cost vary in direct proportion to volum. Often fixed cost unavoidable such as office building rent or lease payments, salaries, business insurance, utility, equipment lease etc. these expenses are not changed based on sales as well as these fixed cost are not directly relevant indecision making process while consider new contract on investment. As these cost are remainconstant whatever decision is taken in the organisation while invest or not. How budgets are useful for planning, decision making and control?Generally, Budgeting is a short-term financial planning process, that helps in managing,controlling, and increase in productivity of organisation by ensuring goals and plans. Budgetis the important tool for planning, controlling and decision making in organisation includingimproving communication and coordination, which is used by upper level managers to plan,evaluate, and control the use of scarce resource of the organisation. Furthermore, A masterbudget is a plan that presenting the company’s goals and how management intends to acquireand use resources to attain those objectives. It helps in planning for future earnings andfinancing of assets and results in a projected income and balance sheet. Moreover, thebudgeting process involves future planning for future productivity and profitability. Inaddition, budgeting system helps to company management by comparing financial oraccounting data with budgeted projections during the budget period and investigate thedifferences. Thus, budget is an important tool for organisational internal control and thathelps managers to make effective decision to serve a plan of action. Budget is the process ofsetting standards, receiving feedback on actual performance, and taking useful action toachieve organisation’s objectives. Besides, budget dealing with projections and estimates forfuture operating results and financial performance and position by compare actual resultswith budgeted outcomes during operating period. Budget helps in decision making processsuch as to ensure long-term goals and objectives including quality of products or services,growth of sales rate, achieve target markets and so on.
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Discuss the benefits of using the Payback period method together with NPV and IRRAdvantage of payback periodThe benefits of using payback period method is evaluating the capital expenditure projects ina simple way which is easy to use and understand. Also, it helps to compare different projectsand take projects that has a shortest time of payback period while investor making decisionswith regards to investing in new project. However, it ignores many aspects such asprofitability that would be considered in the organisation when evaluating the economicdevelopments. Advantage of NPVOne of the important factor of NPV is that it considers time value of money and it considersall the cash flows of the project including completion time period. It allows investor to knowabout whether their investment will give profit or not. While evaluate projects or investmentdecision, NPV gives absolute measures in the form of monetary return. Thus, higher orpositive NPV always accepted while taking investment decision. Internal rate of returnThe main important factor of IRR is that takes into consideration of the time value of moneyfor even and uneven cash flows of the company. Also, it includes both total cash inflow andtotal outflow in the organisation. Likewise, it provides maximum profitability to shareholdersand profitability of an investment is more valued than how long a projects lasts. Will be a theory question. Could be about remuneration, Balanced Scorecard, and/or strategy map (developing or evaluating).Construct strategy map and analyse its structureStrategy map is a powerful tools that measures the strategically summarise into one singleframe of how objectives in the perspectives integrate and combine to guide strategy byunderstand power and simplicity in the organisation. While, it allows to quickly recognise,evaluate and manage the important measures and it focuses on illustrating links betweendifferent perspectives. In addition, there are main four perspective are available in theorganisation such as, financial, customer, internal business and learning and growthperspective. Furthermore, Learning & growth creates capacity to provide business process,customer values that leads to financial performance and measures within each perspective.Hence, investing in employee training create a more reliable, faster and quicker customerservices and experiences. Whereas, it allows to perform the customer services more quickly.If organisation provide customer services more quickly then they will be more satisfied andretained. Besides, employee satisfaction leads to effective efficiency in workplace and itpresents yields in the organisation. Thus, these all perspectives lead to growth in financialperformance and market value of the company.
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