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Topic 2 Competitiveness, Strategy, and Productivity: Problems

The document discusses productivity measures and provides examples to calculate labor productivity and multi-factor productivity. It defines labor productivity as output per labor input and multi-factor productivity as a measure that considers multiple inputs like labor, materials, and overhead. It provides tips for solving the sample problems, such as organizing key information into a table to calculate complex multi-factor productivity measures.

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Mark Roger Huberit II
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168 views

Topic 2 Competitiveness, Strategy, and Productivity: Problems

The document discusses productivity measures and provides examples to calculate labor productivity and multi-factor productivity. It defines labor productivity as output per labor input and multi-factor productivity as a measure that considers multiple inputs like labor, materials, and overhead. It provides tips for solving the sample problems, such as organizing key information into a table to calculate complex multi-factor productivity measures.

Uploaded by

Mark Roger Huberit II
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Competitiveness, Strategy, and Productivity

TOPIC 2
COMPETITIVENESS, STRATEGY, AND PRODUCTIVITY

PROBLEMS
P1. The Cool-Tech Company produces various types of fans. In May, the company produced 1,728
window fans at a standard price of $40.00. The company has 12 direct labor employees. During
May, window fans were produced on 9 working days (of 8 hours each), and other products were
produced on other days. Determine the labor productivity of the window fans.
P2. The Cool-Tech Company (see P1) also produces desk fans at a standard price of $25.00. During
May, 1,872 desk fans were produced on 11 working days (of 8 hours each). On one day, two
employees called in sick.
a. Determine the labor productivity of the desk fans.
b. Was productivity higher for the window fans or for the desk fans in May?
P3. Here is additional information about the Cool-Tech Company (see P1 & P2). There were 20
working days in May, during which the compensation for a Cool-Tech direct labor employee
(including wages and fringe benefits) amounted to $21.00 per hour. The direct material cost of
window fans is $7.00; the direct material cost of desk fans is $5.00. The annual overhead expense
incurred in operating the factory is $600 per working day.
a. Determine the multi-factor productivity of the Cool-Tech Company in May.
b. What is the interpretation of the multi-factor productivity?
P4. In June, the Cool-Tech Company produced 1,730 window fans (see P1) in 10 working days. No
employees were absent during that time period. What was the percentage change in labor
productivity of window fans from May?

1
Competitiveness, Strategy, and Productivity

PROBLEM SOLVING TIPS


1. Beware the difference between partial and multi-factor productivity measures. Partial
productivity measures compare a single type of output to a single type of input. Problems P1 and P2 ask
for labor productivity, which is a common partial measure that calculates how much output per some
measure of labor used. What measure of labor? That depends on what information you have available.
It isn’t appropriate to calculate “fans per employee” when you also have information on how many days
the employees worked, and how many hours each day. That is why we answer P1 and P2 with “fans per
labor hour.”

Multi-factor productivity measures are more complex, because they require the “mixing” of
unlike factors such as labor, materials and overhead. Problem P3 is an excellent example of this. How do
we mix unlike factors? By translating all factors into financial terms, such as dollar value, and then
summing the values together. In some multi-factor problems you will only “mix” factors in the
denominator, while the numerator remains a single type of output. However, problem P3 not only
requires the “mixing” of labor, material and overhead expense in the denominator, it also requires you to
include two different output types in the numerator (window and desk fans), so you are obligated to
translate these into dollar amounts as well.

2. Occasionally, there is more than one approach and answer to a question. Problems P1 and
P2 are good examples of this. Both ask for labor productivity, and both supply you with enough
information to calculate either “fans per labor hour” or “dollar value of fans per labor hour”. As you can
see on page 55 of the textbook, either of these ratios is an accepted measure of labor productivity.

3. Consider drawing a table to organize various pieces of information in a complex problem.


Sometimes problems provide multiple facts about multiple objects of interest. Instead of re-reading the
written scenario multiple times while you piece together a complex calculation, it is often easier to first
“extract” the facts and organize them visually into a table. You can then review the table instead of the
entire story problem. Problem P3 is a good example of such a situation- when you finish reading this
problem, you know four facts (price, May output, material cost, and labor used, working days used) about
two different objects of interest (window and desk fans), plus two other relevant financial rates (daily
overhead and hourly labor expense). Your “quick reference” table might look like this:

Pric Output Direct Working Days in Labor Used in


e in May Material Cost May Used May
Window $40 1728 $7 9 12*9*8 = 864
Fans
Desk $25 1872 $5 11 (12*10*8) +
Fans (10*1*8) = 1040
Other:
Daily overhead rate: $600 per working day
Direct labor cost: $21 per labor hour

You now have all the information you need to complete the complex multi-factor calculation in problem
P3, arranged according to your preferences in a single location.

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