Contribution Per Limiting Factor Calculator

The Contribution Per Limiting Factor Calculator helps businesses assess how efficiently a limiting factor, such as machine hours, labor hours, or raw material, is utilized to generate a contribution margin. This tool is especially valuable in production and operations management, where limited resources must be allocated to maximize profitability. By using this calculator, businesses can identify which products offer the highest contribution per unit of the limiting factor and prioritize them accordingly.

Formula of Contribution Per Limiting Factor Calculator

The contribution per limiting factor is calculated using the formula:

Contribution Per Limiting Factor = Contribution Margin Per Unit / Limiting Factor Per Unit

Detailed Formula Components

1. Contribution Margin Per Unit:
   Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit
   • Selling Price Per Unit: Revenue earned from selling one unit of the product.
   • Variable Cost Per Unit: Includes all variable costs associated with producing one unit, such as materials, labor, and overheads.
2. Limiting Factor Per Unit:
   • The amount of the limiting resource required to produce one unit of the product. This could be measured in machine hours, labor hours, or raw material quantities.

Importance:

The result highlights how efficiently the limiting factor is use to generate profit, enabling better resource allocation and decision-making.

General Terms Table

Here’s a table illustrating contribution per limiting factor for various scenarios:

Selling Price Per Unit ($)	Variable Cost Per Unit ($)	Contribution Margin Per Unit ($)	Limiting Factor Per Unit (Hours)	Contribution Per Limiting Factor ($/Hour)
100	60	40	2	40 / 2 = 20
150	90	60	3	60 / 3 = 20
200	100	100	5	100 / 5 = 20
250	150	100	4	100 / 4 = 25
300	200	100	2	100 / 2 = 50

This table highlights how variations in limiting factors and contribution margins impact the efficiency of resource utilization.

Example of Contribution Per Limiting Factor Calculator

Let’s calculate the contribution per limiting factor for a product:

1. Selling Price Per Unit: $200
2. Variable Cost Per Unit: $120
3. Limiting Factor Per Unit: 3 hours

Step 1: Calculate the Contribution Margin Per Unit

Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit
Contribution Margin Per Unit = 200 - 120 = $80

Step 2: Calculate the Contribution Per Limiting Factor

Contribution Per Limiting Factor = Contribution Margin Per Unit / Limiting Factor Per Unit
Contribution Per Limiting Factor = 80 / 3 = $26.67

Result:

The contribution per limiting factor is $26.67, indicating that each hour of the limiting factor generates $26.67 in contribution margin.

FAQs