CALCULATING PRODUCTIVITY

1.
Q1 Q2
Output $20*10,000=$200,000 $178,000
Input $10*9000+$500=$20,000=$185,000 $165,250
Profit $200,000-$185,000=$15,000 $13,250
Productivity 200,000/185,000=1.081 1.081(-0.1%)
Profit decreased $1750 but productivity remained about the same (-0.1% year over year)
Q1 Q2
Labor productivity 200,000/90,000=2.22 2.30(+3.6%)
Material productivity 200,000/75,000=2.67 2.56(-4.1%)

Labor productivity appears to have increased (+3.6%) Material productivity appears to have
decreased (-4.1%)
2. What is the productivity as measured in units of output per dollar of input over a 3 year

period?

a. Productivity = (total burgers produced)/$labor+$equipments) = (50,000*52*3)/9,000*3+6,000

= 236 pizza/input

b. Management has the option of replacing the old equipment to $11,000 equipment, with an

operating life of five years. It would reduce labor costs to $5,000 per year. Should management

purchase this equipment (using productivity arguments alone)?

B. for new machine project:

Productivity = (50,000*52*5)/5,000*5+11,000)

= 361 pizza/input