Question

Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent product and excellent location, demand has increased by 35 % in the last year. On far too many occasions, customers have not been able to purchase the bread of their choice. Because of the size of the store, no new ovens can be added. At a staff meeting, one employee suggested ways to load the ovens differently so that more loaves of bread can be baked at one time. This new process will require that the ovens be loaded by hand, requiring additional manpower. This is the only production change that will be made in order to meet the increased demand. The bakery currently makes 1500 loaves per month. Employees are paid $8 per hour. In addition to the labor cost, Charles also has a constant utility cost per month of $700 and a per loaf ingredient cost of $0.40.

a)Current multifactor productivity for 640 work hours per month =

b) After increasing the number of work hours to 864 per month , the multifactor productivity =

Answer 1

The multifactor productivity can be calculated as the ratio of the output to that of the input.

The input ( in terms of dollar) includes =

(total labour hours * rate per hour) + cost of raw material + other cost

The output will be taken in terms of units.

In this way the multifactor productivity of the above problem can be calculated as -

A-

TOTAL OUTPUT = 1500 UNITS

TOTAL INPUTS =  

total labour = $8 * 640

   = $ 5120

cost of raw material = $0.40 * 1500

= $600

utility cost = $700

MONTHLY MULTIFACTOR PRODUCTIVITY = 1500 / ( 5120 + 600 + 700)

= $ 0.23 PER UNIT

B-

  TOTAL OUTPUT= 1500 UNITS

TOTAL INPUTS =  

total labour = $8 * 864

   = $ 6912

cost of raw material = $0.40 * 1500

= $600

utility cost = $700

MONTHLY MULTIFACTOR PRODUCTIVITY = 1500 / ( 6912 + 600 + 700)

= $ 0.18 PER UNIT