Productivity Ratios

Labor Productivity =

# of units produced (or $ value of units produced) / # of labor hrs spent (or payroll cost $)

Multi-factor Productivity =

# of units produced (or $ value of units produced) / SUM of ALL inputs in $

Problem 1

Natalie Attire makes fashionable garments. During a particular week, employees worked 360 hours to produce a batch of 132 garments, of which 52 were “seconds” (meaning that they were flawed). Seconds are sold for $90 each at Attire’s Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each. What is the labor productivity ratio of this manufacturing process?

Solution

Problem 2

Alyssa’s Custom Cakes currently sells 5 birthday, 2 wedding, and 3 specialty cakes each month for $50, $150, and $100 each, respectively. It takes 90 minutes to produce a birthday cake, 240 minutes to produce a wedding cake, and 60 minutes to produce a specialty cake. Alyssa’s current multifactor productivity ratio is 1.25.

a) Use the multifactor productivity ratio provided to calculate the average cost of the cakes produced.

b) Calculate Alyssa’s labor productivity ratio in dollars per hour for each type of cake.

c) Based solely on labor productivity ratio, which cake should Alyssa try to sell the most?

d) Based on your answer in part (a), is there a type of cake Alyssa should stop selling?

Solution

Problem 3

The Morning Brew Coffee Shop sells Regular, Cappuccino, and Vienna blends of coffee. The shop’s current daily labor cost (for all 3 beverage types) is $320, the equipment cost is $125, and the overhead cost is $225. Daily demands, along with selling price and material costs per beverage, are given below.

Regular coffee

Cappuccino

Vienna coffee

Beverages sold

350

100

150

Price per beverage

$2.00

$3.00

$4.00

Material cost

$0.50

$0.75

$1.25

Harald Luckerbauer, the manager at Morning Brew Coffee Shop, would like to understand how adding Eiskaffee (a German coffee beverage of chilled coffee, milk, sweetener, and vanilla ice cream) will alter the shop’s productivity. His market research shows that Eiskaffee will bring in new customers and not cannibalize current demand. Assuming that the new equipment is purchased before Eiskaffee is added to the menu, Harald has developed new average daily demand and cost projections. The new (for all 4 beverage types) daily equipment cost is $200, and the overhead cost is $350. The daily demand, selling price and material costs per beverage for the new product line, are given below.

Eiskaffee

Beverages sold

75

Price per beverage

$5.00

Material cost

$1.50

Calculate the change in labor and multifactor productivity if Eiskaffee is added to the menu.

Solution

5

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