Product mix decisions and production lot sizes

Abstract

According to the earlier research related to the product mix decisions, the approach called throughput accounting seems to provide much better results than conventional management accounting. However, all the examples so far have assumed that cycle times in used resources are not dependent on any other variable. In practice, the situation is not so simplified; the decisions related to production lot sizes will affect the cycle time requirement of a product in a particular resource, and, in the case of capacity constraint, the product's and system's profitability. The main cause for this is the setup time in a particular resource. As can be concluded from the results of this paper, the appropriate lot sizing decisions will enable system to produce more with its existing resources and therefore increase its profits significantly. As the performed sensitivity analysis suggests, the differences between traditional management accounting and throughput accounting will become increasingly insignificant after lot sizes have been somewhat increased. According to shown results it is being suggested that lot sizing decisions are rather important for the profitability of manufacturing unit, and especially in capacity constraint resource(s) the use of smaller lot sizes should be avoided.