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HOMEWORK 1

1. Stix Furniture Company


Yesterday, the employees at Stix produced 46 chairs. Of the 46 chairs produced, 12 were
damaged due to a problem with a new sanding machine. The damaged chairs can be discounted
and sold for $25 each. The undamaged chairs are sold to a retail chain for $70 each. Labor costs
were $720, material costs were $460, and overhead costs were $500. What was the multi-factor
productivity?

Output = 12 chairs x $25/chair + 34 chairs x $70/chair = $2680


Input

= $720 + $460 + $500 = $1680

Multi-factor productivity = $2680 / $1680 = 1.60


2. Maxs Performance Auto
Maxs Performance Auto modifies 375 autos per year. The owner, Max Magee, is interested in
obtaining a measure of overall performance. He has asked you to provide him with a multi-factor
measurement of last years performance as a benchmark for future comparison. You have
assembled the following data. Resource inputs were: labor, 10,000 hours; 300 engine
modification kits; 200 suspension kits; and energy, 100,000 Kilowatt-hours. Average labor cost
last year was $20 per hour, engine kits cost $1,500 each, suspension kits cost $1,000 each, and
energy costs were $3 per Kilowatt-hour. What do you tell Max?

Output = 375 autos


Input

= (10,000 hours x $20/hour) + (300 kits x $1,500/kit)


+ (200 kits x $1,000/kit) + (100,000KWHr x $3/KWHr)
= $1,150,000

Multi-factor productivity = 375 autos / $1,150,000 = 1 auto / $3,067


3. Big Black Bird Company
The Big Black Bird Company (BBBC) has a large order for special plastic-lined military
uniforms to be used in an urgent Middle East operation. Working the normal two shifts of 40
hours, BBBC usually produces 2,500 uniforms per week at a total cost (labor + material +
overhead) of $120 each. The contract price is $200 per uniform. Because of the urgent need,
BBBC has authorized around-the-clock production, six days a week. When each of the two shifts
works 72 hours per week, production increases to 4000 uniforms per week, but at a total cost of
$144 each.
a. Did the labor productivity ratio increase, decrease, or remain the same? If it changed,
by what percent did it change?
b. Did the multi-factor productivity ratio increase, decrease, or remain the same? If it
changed, by what percent did it change?
c. Did the weekly profits increase, decrease, or remain the same?

d. Is it worth it?

a.

LABOR PRODUCTIVITY

Original

Value of output 2500 x $200 = $500,000


Input = 80 labor force hours
Labor productivity $500,000/80 hr = $6,250/hr

Overtime

Value of output 4000 x $200 = $800,000


Input = 144 labor force hours
Labor productivity $800,000/144 hr = $5,556/hr

Labor productivity
($6,250/hr $5,556/hr) / $6,250/hr = 11.1% decrease
b.

MULTI-FACTOR PRODUCTIVITY

Original

Value of output 2500 x $200 = $500,000


Value of input 2500 x $120 = $300,000
Multi-factor productivity 500,000/300,000 = 1.67

Overtime

Value of output 4000 x $200 = $800,000


Value of input 4000 x $144 = $576,000
Multi-factor productivity 800,000/576,000 = 1.39

Multi-factor productivity (1.67 1.39) / 1.67 = 16.8% decrease


c.

d.

GROSS PROFITS

Original

$500,000 - $300,000 = $200,000

Overtime

$800,000 - $576,000 = $224,000

$24,000 increase

IS IT WORTH IT?

Original profit / uniform

$200,000/2500 = $80.00 each

Overtime profit / uniform

$224,000/4000 = $56.00 each

Incremental profit / incremental uniform $24,000/1500 = $16.00 each