Pergamon Omega, Int. J. Mgmt Sci. Vol. 23, No. 1, pp. 89-95, 1995 Copyright © 1995 Elsevier Science Lid 030541483(94)000534) Printed in Great Britain. All rights reserved 0305-0483/95 $9.50 + 0.00 Fixed Cost Oriented Bottleneck Analysis With Linear Programming T KOLTAI Technical University of Budapest, Hungary (Received March 1994; accepted after revision September 1994) Despite the increasing ratio of fixed cost in the operating cost of production systems, variable cost oriented decision support methods prevail. These methods, however, have several unexploited capabilities to consider period costs as well. This paper shows how sensitivity analysis of the optimum solution of a linear programming model can provide overhead oriented information as well. The analysis is illustrated with a simple example. Key words--production, resource management, LP, sensitivity analysis, accounting 1. INTRODUCTION OWING TO THE development of production technology considerable revision needs to be made in various areas of production manage- ment. The changing cost structure of production systems undermines a number of prevailing management accounting principles [9]. For a long time, the reduction or strict control of variable costs has determined most financially based design and control type decisions. This was characteristic of the era when high volume production was carried out on low value machines, and with relatively high direct labour content. The contribution income statement was dominated by the variable cost. Every change on the dominant variable cost elements had severe consequences on the profit. As a result of the appearance of automated production systems, flexible manufacturing and computer controlled technologies the majority of direct labour cost became part of the over- head costs [1]. The demand for highly qualified maintenance staff, the dominance of white collar workers in the workshop, the increasing role of production planning and programming 89 have all resulted in the decrease of the ratio of direct labour cost. Owing to the high purchase price of machines and expensive material handling systems the ratio of depreciation has also increased. Despite these phenomena, traditional management accounting methods are still in use, and production planning and control is strongly influenced by variable cost oriented methods. The demand for new concepts in management accounting has been expressed fre- quently [8, 9], but to find appropriate methods is not easy. A two-fold approach has to be applied; new techniques are to be created to consider the changing manufacturing environ- ment, but those features of the old methods which can be adapted to the new conditions have to be exploited as well. The objective of this paper is to show that linear programming, which has been extensively used for production planning, can consider overhead cost oriented decisions as well. In Section 2 a method is introduced to measure the capacity utilization of production resources in a system oriented context. In Section 3 an exten- sion of shadow price analysis is presented to