Key factor financial definition of key factor
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Fig. 51 Limiting factor. Contributions and constraints.
limiting factor or
key factor the critical constraint upon a firm's budgeted activity level. In most circumstances the limiting factor will be the amounts that the company can sell, but in certain cases the limiting factor might be shortage of production capacity, shortages of particular raw materials or the like. Here planning will be aimed at devising a sales programme which generates maximum profit from these limited resources. For example, Fig. 51 shows how a firm with limited production capacity might seek to maximize its CONTRIBUTION by concentrating upon production of the product which requires fewer direct labour hours to make. See BUDGET, BUDGETING, LINEAR PROGRAMMING.