WORKSHEET 1: PRODUCTIVITY

Submission due on: < 30 November 2020

1. An operation has 10% rejections due to quality reasons and produces 72 units of a product every hour. What could
be the potential improvement in productivity that could be achieved if the quality issues were resolved?

2. A worker, in a 36- hour week last month, could make 138 units of a product. But he made 160 units in a 40-hour
week this month. Comment on his productivity.

3. Live Trap Corporation received the data below for its mouse trap production unit. Find the total productivity of the
unit?

Output Input
50,000 cages Production time 620 labor hours
Sales price: $3.50 per unit Wages $7.50 per hour
Raw materials (total cost) $30,000
Component parts (total cost) $15,350

4. Two types of cars (Deluxe and Limited) were produced by a car manufacturer last year. Quantities sold, price per
unit, and labor hours follow. What is the labor productivity for each car? Explain the problem(s) associated with the
labor productivity.

QUANTITY $/UNIT
Deluxe car 4,000 units sold $8,000/car
Limited car 6,000 units sold $9,500/car
Labor, Deluxe 20,000 hours $12/hour
Labor, Limited 30,000 hours $14/hour

5. A U.S. manufacturing company operating a subsidiary in an LDC (less-developed country) shows the following
results:

U.S. LDC
Sales (units) 100,000 20,000
Labor (hours) 20,000 15,000
Raw materials (currency) $20,000 FC 20,000
Capital equipment (hours) 60,000 5,000

a. Calculate partial labor and capital productivity figures for the parent & subsidiary. Do the results seem
misleading?
b. Compute the multifactor productivity figures for labor and capital together. Do the results make more sense?

6. Various financial data for the past two years follow. Calculate the total productivity measure and the partial
measures for labor, capital, and raw materials for this company for both years. What do these measures tell you
about this company?

Last Year This Year

Output: Sales $200,000 $220,000
Input: Labor 30,000 40,000
Raw materials 35,000 45,000
Energy 5,000 6,000
Capital 50,000 50,000
Other 2,000 3,000
7. A fast-food chain processes its daily customer orders in its 4 units as follows: 4 employees process 36 customers in
the 1st unit. Unit 2 has 5 employees who process 40 customers on an average. Unit 3 is the largest, with 8
employees and gets 60 customer orders processed on an average. The smallest of the units has 3 employees
processing 20 orders. The labour rate is $30 every hour and the operations overhead is about 1.2 times the labour
cost. The materials to process orders cost $10 per customer order. Assess the productivity of the units and report.
The chain is considering a new standard operating procedure that could enable the employees to process another
additional order per day. Make your recommendation based on the difference it could have on the productivity. You
could assume an 8-hour working day for your calculations.

8. Mack’s guitar fabrication shop produces low-cost, highly durable guitars for beginners. Typically, out of the 100
guitars that begin production each month, only 80 percent are considered good enough to sell. The other 20 percent
are scrapped due to quality problems that are identified after they have completed the production process. Each
guitar sells for $250. Because some of the production process is automated, each guitar only requires 10 labor
hours. Each employee works an average 160 hours per month. Labor is paid at $10/hour, materials cost is
$40/guitar, and overhead is $4,000.

a. Calculate the labor and multifactor productivity ratios.

b. After some study, the operations manager Darren Funk recommends three options to improve the company’s
multifactor productivity: (1) increase the sales price by 10 percent, (2) improve quality so that only 10 percent
are defective, or (3) reduce labor, material, and overhead costs by 10 percent. Which option has the greatest
impact on the multifactor productivity measure?

9. The Morning Brew Coffee Shop sells Regular, Cappuccino, and Vienna blends of coffee. The shop’s current daily
labor cost is $320, the equipment cost is $125, and the overhead cost is $225. Harald Luckerbauer, the manager at
Morning Brew Coffee Shop, would like to understand how adding Eiskaffee (a German coffee beverage of chilled
coffee, milk, sweetener, and vanilla ice cream) will alter the shop’s productivity. His market research shows that
Eiskaffee will bring in new customers and not cannibalize current demand. Assuming that the new equipment is
purchased before Eiskaffee is added to the menu, Harald has developed new average daily demand and cost
projections. The new equipment cost is $200, and the overhead cost is $350. Modified daily demands, as well as
selling price and material costs per beverage for the new product line, are given below.

Regular Cappuccino Vienna Eiskaffee

Beverages sold 350 100 150 75
Price per beverage $2.00 $3.00 $4.00 $5.00
Material ($) $0.50 $0.75 $1.25 $1.50

a. Calculate the change in labor and multifactor productivity if Eiskaffee is added to the menu.
b. If everything else remains unchanged, how many units of Eiskaffee would have to be sold to ensure that the
multifactor productivity increases from its current level?

10. Mariah Enterprises makes a variety of consumer electronic products. Its camera manufacturing plant is considering
choosing between two different processes, named Alpha and Beta, which can be used to make two component
parts, A & B. To make the correct decision, the managers would like to compare the labor and multifactor
productivity of process Alpha with that of process Beta. The value of process output for Alpha and Beta is $175 and
$140 per unit, and the corresponding overhead costs are $6,000 and $5,000, respectively.

PROCESS ALPHA PROCESS BETA

Product A B A B
Output (units) 50 60 30 80
Labor ($) $1,200 $1,400 $1,000 $2,000
Material ($) $2,500 $3,000 $1,400 $3,500

a. Which process, Alpha or Beta, is more productive?

b. What conclusions can you draw from your analysis?