Question

The output of a process is valued at $100 per unit. The cost of labor is $50 per hour including benefits. The accounting department provided the following information about the process for the past four weeks:

	Week 1	Week 2	Week 3	Week 4
Units produced	1,124	1,310	1,092	981
Labor ($)	12,735	14,842	10,603	9,526
Material ($)	21,041	24,523	20,442	18,364
Overhead ($)	8,992	10,480	8,736	7,848

a.   Use the multifactor productivity ratio to see whether recent process improvements had any effect and, if so, when the effect was noticeable.

b.   Has labor productivity changed? Use the labor productivity ratio to support your answer.

Answer 1

Total value of unite produced:-           

For week 1=1124*$100=$112400

For week 2=1310*$100=$131000

For week 3=1092*$100=$109200

For week 4=981*$100=$98100

Total Labour hours:-

For week 1=12735/$50=254.7

For week 2=14842/$50=296.8

For week 3=10603/$50=212.1

For week 4=9525/$50=190.5

Answer A:-

Multifactor productivity ratio

For week 1= output/input =112400/42768=2.628

For week 2= output/input =131000/49845=2.628

For week 3= output/input =109200/39781=2.745

For week 4= output/input =98100/35738=2.745

Difference = (2.745-2.628/2.628)*100 =4.45%

Thus there is an improvement in Multifactor productivity ratio in week 3.

Answer B:-

Labour productivity:-

For week 1=output/input =1124/254.7 =4.413/hour

For week 2=output/input =1310/296.84 =4.413/hour

For week 3=output/input =1092/212.06 =5.1495/hour

For week 4=output/input =981/190.52 =5.1491/hour

Changes =(5.1491-4.4130/4.413)*100% =16.68%

So labour productivity improved by 16.68%

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