Transcript Chapter 2 Problem Example

Chapter 2
Problem
Productivity Formulas
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Productivity = Output Produced / Input Used
Partial Prod. = Output / Labor
Partial Prod. = Output / Machines
Multifactor = Output / Labor + Machines
Multifactor = Output / Labor + Materials
Multifactor = Output / Labor + Capital +
energy
Problem
• Collins Title wants to evaluate its labor and multifactor
productivity with a new computerized title search
system. The company has a staff of 4, each working an
8 hour shift (total payroll cost/day = $640/day) with
overhead expenses of $400/day. Collings processes 8
titles per day. The new system will allow 14 titles to be
completed. With the new system, the staff, hours, and
pay are the same. However, the overhead expenses
are now $800 / day.
• Will the new system save them money over the long
run?
Solution
• Productivity Old System = 8 titles/32 hours =
.25 titles per labor hour
• Productivity New System = 14 titles/32 hours=
.4375 titles per labor hour
• An increase of .4375 - .25 = .1875 more per
hour or an increase of 75%. .4375 / .25 = 1.75
or 75%.
• Is this enough to justify the new system?
Need more information
• Multifactor Productivity Old system
8 titles / $640 + $400 = .0077 titles per dollar.
• Multifactor Productivity New System
14 titles / $640 + $800 = .0097 titles per dollar.
• Multifactor productivity increases from .0077
to .0097 or 26% increase .0097 / .0077 = 1.26.
• Is it worth it?ookl8