Chapter 2 Problems

5
A U.S. manufacturing company operating a subsidiary in an LDC (less developed
country) shows the following results:
Sales (units)
Labor (hours)
Raw Materials (currency)
Capital Equipment (hours)

U.S
100,000
20,000
$20,000
60,000

LDC
20,000
15,000
FC 20,000
5,000

a. Calculate partial labor and productivity figures for the parent and the subsidiary.
Do the result seem misleading?
b. Compute the multifactor productivity figures for labor and capital together. Are
the results better?
c. Calculate raw material productivity figures (unit/$ where $1= FC 10). Explain
why these figures might be greater in the subsidiary.
6 Various financial data for 2004 and 2005 follow. Calculate the total productivity
measure and the partial measures for labor, capital, and raw materials for this
company for both years. What do these measures tell you about this company?
Output:
Input:

Sales
Labor
Raw Materials
Energy
Capital
Other

2004
$200,000
30,000
35,000
5,000
50,000
2,000

2005
$220,000
40,000
45,000
6,000
50,000
3,000

1e A retail store had sales of $45,000 in April and $56,000 in May. The store employs
eight full-time workers (they work a 40-hour week). In April the store also had seven
part-time workers at 10 hours per week, and in May the store had 9 part-timers at 15
hours per week (assume four weeks in each month). Using sales dollars as the
measure of output, what is the percentage change in productivity from April to May?
2e A fast-food restaurant serves hamburgers, cheeseburgers, and chicken sandwiches.
The restaurant counts a cheeseburger as equivalent to 1.25 hamburgers and chicken
sandwiches as 0.8 hamburgers. Current employment is five full-time employees (who
work a 40-hour week). If the restaurant sold 700 hamburgers, 900 cheeseburgers, and
500 chicken sandwiches in one week, what is the productivity? What would its
productivity have been if it had sold the same number of sandwiches (2,100) but the
mix was 700 of each type?

Chapter 2 Answers
5a. Labor Productivity
Country
U.S
LDC

Output in Units
100,000

Input in Hours
20,000

Productivity (Output/Input)
100,000/20,000 = 5

20,000

15,000

20,000/15,000 = 1.33

Capital Equipment Productivity

Country
U.S
LDC

Output in Units
100,000

Input in Hours
60,000

Productivity (Output/Input)
100,000/60,000 = 1.67

20,000

5,000

20,000/5,000 = 4

Yes, the results are misleading as you would expect the capital equipment productivity
measure to be higher in the U.S. than in a LDC.
5b. Multifactor Labor and Capital Equipment
Country
U.S
LDC

Output in Units
Input in Hours
Productivity (Output/Input)
100,000
20,000+60,000 = 80,000
100,000/80,000 = 1.25
20,000

15,000+5,000 = 15,000

20,000/20,000 = 1

Yes, results are better because labor and equipment can be substituted for each other.
Therefore, this multifactor measure is a better indicator of productivity in this instance.
5c. Raw Material Productivity
Country
U.S
LDC

Output in Units
100,000

Input in Hours
$20,000

Productivity (Output/Input)
100,000/20,000 = 5.00

20,000

FC $20,000/10 = $2,000

20,000/2,000 = 10.00

Raw material productivity measures might be greater in the LDC due to a reduced cost
paid for raw materials, which is typical of LDCs.

6 Total Productivity
Year
1998
1999

Output in Dollars
Input in Dollars
Productivity (Output/Input)
$200,000 $30,000+35,000+5,000+50,000+2,000 = $122,000 200,000/122,000 = 1.64
$220,000 $40,000+45,000+6,000+50,000+3,000 = $144,000

220,000/144,000 = 1.53

Partial Measure Labor

Year
1998
1999

Output in Dollars
$200,000
$220,000

Input in Dollars Productivity (Output/Input)

$30,000
200,000/30,000 = 6.67
$40,000

220,000/40,000 = 5.50

Partial Measure Raw Materials

Year
1998
1999

Output in Dollars
$200,000
$220,000

Input in Dollars Productivity (Output/Input)

$35,000
200,000/35,000 = 5.71
$45,000

220,000/45,000 = 4.89

Partial Measure Capital

Year
1998
1999

Output in Dollars
$200,000
$220,000

Input in Dollars Productivity (Output/Input)

$50,000
200,000/50,000 = 4.00
$50,000

220,000/50,000 = 4.40

The overall productivity measure is declining, which indicates a possible problem. The
possible measures can be used to indicate cause of declining productivity. In this case, it
is a combination of declines in both labor productivity and raw material productivity, but
an increase in capital productivity. Further investigation should be taken to explain the
drops in both labor and raw materials productivity. An increase in the cost of both of
these measures, without an accompanying increase in the selling price might explain
these measures.
1e.
Month
April

Output in Dollars
$45,000

May

$56,000

Input in Hours Productivity (Output/Input) Percentage Change

1,560
45,000/1,560 = 28.85
1,820

56,000/1,820 = 30.77

(30.77-28.85)/28.85 = 6.67%

2e.
Part
Output in Hamburger Equivalents Input in Hours Productivity (Output/Input)
Hamburgers--- 700
Cheeseburgers--- 900*(1.25) = 1125
Chicken Sand--- 500*(0.8) = 400
2,225
200
2,225/200 = 11.125
Hamburgers--- 700
Cheeseburgers--- 700*(1.25) = 875
Chicken Sand--- 700*(0.8) = 560
2,135
200
2,135/200 = 10.675