Activity 1

Productivity can be measured in a variety of ways, such as labor, capital, energy, material usage, and so on. At
COCO Lumber, Inc., Edward Dela Cruz, president and producer of mango crates sold to growers, has been able,
with his current equipment, to produce 240 crates per 100 logs. He currently purchases 100 logs per day, and
each log requires 3 labor-hours to process. He believes that he can hire a professional buyer who can buy a
better-quality log at the same cost. If this is the case, he can increase his production to 260 crates per 100 logs.
His labor-hours will increase by 8 hours per day.

a. What is their productivity?

b. What will be their new productivity?
c. What will be their unit increase in productivity per hour?
d. What will be the impact (productivity growth in percentage) on productivity, measured in crates per labor-
hours, if the buyer is hired?

Answer:

a. Current labor productivity = 240 crates

(100 logs * 3 hours)
= 0.8 crates per labor hour

b. Labor productivity with buyer = 260 crates

(100 logs * 3 hours) + 8 hours

= 260 crates
308 logs per hour
= 0.84 crates per labor hour

c. Labor productivity with buyer -Current labor productivity

= (0.84 -0.80)
=.04 crates per labor hr

d. Labor productivity with buyer -Current labor productivity / Current labor productivity
= (0.84 -0.80)/ .80
=.05 or 5% increased to the labor productivity with the buyer.
1. RURAL Bank employs three loan officers, each working eight hours per day. Each officer processes an average of
five loans per day. The bank’s payroll cost for the officers is P820 per day, and there is a daily overhead expense
of P500.

a. Compute the labor productivity.

b. Compute the multifactor productivity, using loans per cost as the measure.

The bank is considering the purchase of new computer software for the loan operation. The software will
enable each loan officer to process eight loans per day, although the overhead expense will increase to P550.

c. Compute the new labor productivity.

d. Compute the new multifactor productivity.

e. Should the bank proceed with the purchase of the new software? Explain.

Solution

a. Labor productivity is simply the ratio of loans to labor-hours:

output (loans) 3 officers × 5 loans/day
= = 0.625 loans/labor-hr.
input (labor-hrs.) 3 officers × 8 hrs./day

b. Multifactor productivity accounts for both labor cost and overhead:

output (loans)
input (labor cost + overhead) = 3 officers × 5 loans/day = 0.0113 loans/$.
P820 + P500

The new software increases the number of loans processed per day, but it also increases the overhead.
c. New labor productivity:
 output (loans)

input (labor-hrs.)

d. New multifactor productivity:

output (loans) input (labor cost + overhead) = 3 officers × 8 loans/day P820 + P550 = 0.0175 loans/peso.

e. Purchasing the new software would increase the labor productivity by 60 percent (= [1.0−0.625]/0.625) and would
increase the multifactor productivity by 55 percent (= [0.0175 − 0.0113]/0.0113), so it is certainly worth the added
overhead.