WS & ME (Batch 2017-21) 5th Semester (2020)

Assignment for Topic 01-01: Productivity and Cost

Note: The following questions are being provided to let you test and refresh your
understanding of above topic. Do not hesitate to ask a question in case you do not know the
answer or are unsure about it. Solve them on your notebook – the solution will be checked
in next lecture.

Review Questions:

1. Explain the term ‘value-addition’. Give two examples of value-adding processes.

2. Explain the three types of productivity measures. Discuss their importance.
3. ‘Increase in production does not necessarily mean increase in productivity’.
Comment.
4. Profit can be increased either by increase in sales or decrease in cost. What role can
an industrial engineer play to better achieve the second option i.e. decrease in
costs?

Problems: (Interpret your answers for each problem)

1. Two workers have the job of placing plastic labels on packages before the packages
are shipped out. The first worker can place 1000 labels in 30 minutes. The second
worker can place 850 labels in 20 minutes. Which worker is more productive?
2. Last week a painter painted three houses in five days. This week he painted two
houses in four days. In which week was the painter more productive?
3. One type of bread-machine can make six loaves of bread in five hours. A new model
of the machine can make four loaves in two hours. Which model is more productive?
4. A company that makes kitchen chairs wants to compare productivity at two of its
facilities. At facility #1, six workers produced 240 chairs. At facility # 02, four workers
produced 210 chairs during the same time period. Which facility was more
productive?
5. Med-Tech labs is a facility that provides medical test and evaluations for patients,
ranging from analyzing blood samples to performing magnetic resonance imaging
(MRI). Average cost to patients is $15 per patient, materials costs are $20 per
patient, and overhead costs are averaged at $20 per patient.
a. What is the multifactor productivity ratio for Med-Tech? What does your
finding mean?

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WS & ME (Batch 2017-21) 5th Semester (2020)

b. If the average lab worker spends three hours for each patient, what is the
labor productivity ratio?
6. An operation has a 10 percent scrap rate. As a result, 72 pieces per hour are
produced. What is the potential increase in labor productivity that could be
achieved by eliminating the scrap?
7. The Bureau of Labor Statistics collects input and output data from various countries
for comparison purposes. Labor hours are the standard measure of input. Calculate
the output per hour from the following data. Which country is most productive?

Labor Hours Units of Output

United States 89.5 136
Germany 83.6 100
Japan 72.7 102

8. Posey Ceramics makes ceramic vases for a chain of department stores. The output
and cost figures over the past four weeks are shown here. Labor costs $10 an hour,
and materials are $4 a pound. Calculate the (a) labor productivity (in hrs), (b)
material productivity (in lbs), and (c) multifactor productivity for each week.
Comment on the results.
Week 1 2 3 4
Units of output 2000 4000 5000 7000
No. of workers 4 4 5 6
Hours per week per worker 40 48 56 70
Material (lbs) 286 570 720 1000

9. Compute the multifactor productivity measure for each of the weeks shown. What
do the productivity figures suggest? Assume 40-hour weeks and an hourly wage of
$12. Overhead is 1.5 times weekly labor costs. Material cost is $6 per pound.
Standard price is $140 per unit.
Week Output (units) Workers Material (lbs)
1 300 6 45
2 338 7 46
3 322 7 46
4 354 8 48

10. A company that makes shopping carts for supermarkets and other stores recently
purchased some new equipment that reduces the labor content of the jobs needed
to produce the shopping carts. Prior to buying the new equipment, the company

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WS & ME (Batch 2017-21) 5th Semester (2020)

used five workers, who produced an average of 80 carts per hour. Workers received
$10 per hour and machine cost was $40 per hour. With the new equipment, it was
possible to transfer one of the workers to another department, and equipment cost
increased by $10 per hour while output increased by four carts per hour.
a. Compute labor productivity under each system. Use carts per worker per
hour as the measure of labor productivity.
b. Compute the multifactor productivity under each system. Use carts per
dollar cost (labor plus equipment) as the measure.
c. Comment on the changes in productivity according to the two measures, and
on which one you believe is the more pertinent for this situation.
11. Compact disc players are produced on an automated assembly line process. The
standard cost of compact disc player is $150 per unit (labor, $30; materials, $70; and
overhead, $50). The sales price is $300 per unit.
a. To achieve a 10 percent multifactor productivity improvement by reducing
materials costs only, by what percentage must those costs be reduced?
b. To achieve a 10 percent multifactor productivity improvement by reducing
labor costs only, by what percentage must those costs be reduced?
c. To achieve a 10 percent multifactor productivity improvement by reducing
overhead costs only, by what percentage must those costs be reduced?
12. If the cost of manufacturing (direct material and direct labor) is 60% of sales and
profit is 10% of sales, what would be the improvement in profit if, through better
planning and control, the cost of manufacturing was reduced from 60% of sales to
50% of sales?
13. Amalgamated Fenderdenter’s sales are $10 million. The company spends $3.5
million for purchase of direct materials and $2.5 million for direct labor; overhead is
$3.5 million and profit is $500,000. Direct labor and direct material vary directly with
sales, but overhead does not. The company wants to double its profit.
a. By how much should the firm increase sales?
b. By how much should the firm decrease material costs?
c. By how much should the firm decrease labor cost?

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