Operations and Production Management

MGMT 405

Answer set 2

MGMT 405 Operations and Production Management

Answer set 2
(Reference chapter 2 William J. Stevenson-2007, ninth edition)
Problems and Solutions
1. Suppose that a company produced 300 standard bookcases last week using eight
workers and produced 240 standard bookcases this week using six workers. In
which was productivity higher? Explain.
Ans: Productivitylast week = standard bookcases produced as output / labor= 300/8=
37.8 sbc/worker
Productivity this week = standard bookcases produced as output / labor= 240/6= 40
sbc/worker
The ouput of this week shows that it has higher productivity than last week. This
answer can be improved.
2. The manager of a crew that installs carpeting has tracked the crews output
over the past several weeks, obtaining these figures.

Week

Crew size

Yards Installed

960

702

968

500

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 2

698

500

(a) Compute the labor productivity for each of the weeks.

(b) On the basis of your calculation, what can you conclude about crew size and
productivity?

Ans:
(a) Productivity= Yards of carpet installed/ crew size=960/4= 240 yards/number of
crew.

Week

Crew size

Yards Installed

Labor productivity

960

240

702

234

968

242

500

250

698

232

500

250

(b) Probably even-sized crews are better than odd-sizes and a crew of 2 seems to
work best amongst the others.
2. (a) Compute the multi-factor productivity measure for each of the weeks
shown. (b) What do the productivity figures suggest? Assume 40 hour weeks

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 2

and an hourly wage of $12. Overhead is 1.5 times weekly labor cost. Material
cost is $ 6 per pound.

Week

Output (units)

Workers

Materials (lbs)

30,000

450

33,600

470

32,200

460

35,400

480

Ans:
(a)

Worker cost
Week

Output

Overhead
cost

Materials

Total

cost

cost

MFP

(units)

12*40

30,000

2880

4320

2700

9900

3.03

33,600

3360

5040

2820

11220

2.99

32,200

3360

5040

2760

11160

2.89

35,400

3840

5740

2880

12480

2.84

Week 1- 12*40*6 =2880= worker cost

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 2

Week 1- 12*40*6 =2880* 1.5=4320= overhead cost

Week 1- 450*6 = 2700=material cost
Week 1- 2880+4320+2700=9900 total cost

Week 1-MFP=output (units)/(labor+materials+overhead)

=30000/9900= 3.03

unit per dollar input

(c) Multi-factor productivity dropped steadily from a high of 3.03 to about 2.84
4. A manager checked production records and found out that a worker produced
160 units while working 40 hours. In the previous week, the same worker
produced 138 units while working 36 hours. Compute the workers productivity.
(b) Did his productivity increase, decrease or remain the same? Briefly explain.
(a) Current productivity= produced units as output/ labor hour=160/40=4 unit per
hour
Current productivity= produced units as output/ labor hour=138/36=3.83 unit per
hour
(b)
Growth productivity= Current Period Productivity Previous Period Productivity
Previous Period Productivity

Growth productivity=4-3.83/3.83=0.044
Thus there was an increase of 4.4 % in productivity.

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 2

Q1: Long Beach Bank employs three loan officers, each working eight hours per day. Each officer
processes an
average of five loans per day. The banks payroll cost for the officers is $820 per day, and there is a daily
overhead expense of $500.
a. Compute the labor productivity.
b. Compute the multifactor productivity, using loans per dollar 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
$550.
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)
input (labor-hrs.) =
3 officers 5 loans/day
3 officers 8 hrs./day = 0.625 loans/labor-hr.
b. Multifactor productivity accounts for both labor cost and overhead:
output (loans)
input (labor cost + overhead) =
3 officers 5 loans/day

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.

Operations and Production Management

MGMT 405

Answer set 2

$820 + $500 = 0.0113 loans/$.

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.) =
3 officers 8 loans/day
3 officers 8 hrs./day = 1.0 loans/labor-hr.
d. New multifactor productivity:
output (loans)
input (labor cost + overhead) =
3 officers 8 loans/day
$820 + $550 = 0.0175 loans/$.
e. Purchasing the new software would increase the labor productivity by 60 percent [1.00.625]/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.

2010/11, Sami Fethi, EMU, All Right Reserved, McGraw-Hill, 2007, 9. Ed.