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Example 1.

Three employees process 600 insurance policies in a week. They work 8 hrs. per day,
5-days per week. Find labour productivity.
Solution:
Labour Productivity = [Policies Issued]/[Employee Hours]
Plabour = 600 policies/[(3 employees)(40 hrs/employee)]
Plabour = 5 Policies/hr.

Multi-factor Productivity: Indicates the ratio of many or all resources (inputs) to the
goods and services produced (outputs).

Output
Pr oductivity 
Labour  Material  Energy  Capital  Miscellaneaus

Example 2.
A team of workers make 400 units of a product, which is valued by its standard cost
of 10 MU each (before markups for other expenses and profit). The accounting department
reports that for this job the actual costs are:
400 MU for labour,
1 000 MU for materials and
300 MU for overhead.
Calculate multi-factor productivity.
Solution:
Multi-Factor Productivity = [Quantity at standard cost]/[Labour cost + Materials cost
+ Overhead Cost]
Pmf = [400 Units x 10 MU]/[400MU+1000MU+300MU] = 4 000MU / 1 700 MU
Pmf = 2.35

These measures must be compared with both performance levels in prior periods and
with future goals. If they are not living up to expectations, the process should be investigated
for improvement opportunities. When tracking performance at the department or at an
individual process level, productivity measures may often be insufficient. The smart manager
monitors multiple measures of performance, setting goals for future and seeking better ways
to design and operate processes.
Example 3.
Azim Title company has a staff of 4 each working 8 hours/day (for a payroll cost of
640MU/day) and overhead expenses of 400MU/day, Azim processand closes on 8 titles each
day. The company recently purchased a computerised title-search system that will allow the
processing of 14 titles/day, although the staff, their work hours, and pay will be the same , the
overhead expenses are now 800MU/day.
8 titles / day
Labour-productivity with the old system = 32 labour / hours = 0.25titles/labour-hr

14 titles / day
Labour-productivity with the new system = 32 labour  hrs = 0.4375titles/lab.hr.

8 titles / day
Multi-factor productivity with the old system = = 0.0077 titles/MU
640  400

14 titles / day
Multi-factor productivity with the new system = = 0.0097titles/MU
640  800

Labour productivity has increased from 0.25 to 0.4375.


0.4375
The change is = 1.75 or 75% increase in labour productivity.
0.25
Multi-factor productivity has increased from 0.0077 to 0.0097. This change is
0.0097/0.0077 = 1.259 or a 25.9% increase in multi-factor productivity.

Example 4.
a. Productivity can be measured in a variety of ways, such as labour, capital, energy,
material usage, and so on. At Modern Lumper, Inc. Ali Caliskan, president and producer of
apple crates sold to growers, has been able, with his current equipment, to produce 240
crates per 100 logs, the current purchases 100 logs per day and each log requires 3 labour-hrs
to process.
He believes that he can hire a professional buyer who can buy a better-quality log at
the same cost. If this is the case, he can increase his production to 260 crates/100logs, this
labour-hours will increase by 8 hrs per day.
What will be the impact on productivity(measured in crates per labour-hour) if the
buyer is hired?
b. Ali Caliskan has decided to look at his productivity from a multifactor (total factor
productivity) perspective. To do so, he has determined his labour, capital, energy and material
usage and decided to use money units (MU for dollars or TL) as the common denominator
His total labour-hours are now 300 hrs/day and will increase to 308 hrs/day. His
capital and energy costs will remain constant at 350MU and 150MU per day, respectively.
Material costs for the 100 logs per day are 1000MU and will remain the same.
Because he pays an average of 10 MU/hr (with fringes), Caliskan wants to determine
his productivity increase?

Solution:
240 crates
a. aa) Current Labour Poductivity =  0.8 crates / lab  hr
100 log s  3 hrs

260 crates
ab) Labour Productivity with buyer = = 0.844
(100 log s  3 hrs )  8 hrs
crates/lab-hr.

Using current productivity (0.8 from (a)) as a base, the increase will be 5.5%
(0.844/0.8=1.055 or a 5.5% increase)

b. Current System System with Professional Buyer


Labour 300hrs@10MU=3.000 308hrs@10MU = 3.080 MU
Material 100logs/day 1.000 1.000
Capital 350 350
Energy 150 150
Total Cost 4.500 MU 4.580MU

240 crates
Productivity of current system =  0.0533
4.500
260 crates
Productivityof proposed system   0.0567
4.580
Using current productivity (0.0533) as a base, the increase will be 0.047. That is,
0.0567
 1.064 or 6.4% increase.
0.0533

Example 5:
Ilhan Bal makes wooden boxes in which to ship bikes. Ilhan and his three employees
invest 40 hours per day making the 120 boxes.
a. What is their productivity?
b. Ilhan and his employees have discussed redesigning the process to improve
efficiency. If they can increase the rate to 125 per day. What would be their new
productivity?
c. What would be their increase in productivity?
Solution:
a. Plabour = output/input = 120 boxes/40 hours = 3.0 boxes/hour
b. Plabour = output/input = 125 boxes/40 hours = 3.125 boxes/hour
c. Change in productivity = 0.125 boxes/hour
Percentage change = 0.125 boxes/hour/3.0 boxes/hour = 4.166%

Example 6.
Magusa Metal Works produces cast bronze valves on a 12 person assembly line. On a
recent day, 240 valves produced during an 8 hour shift. Calculate the labour productivity.
Solution:
Total labour hours = 12 persons @ 8 hours = 96 hours
Labour productivity = 240 valves/96 hours = 2.5 valves/hour

Example 7.
Gaye produces “Final Exam Care Packages’ for resale by the sorority. She is currently
working a total of 6 hours a day to produce 120 care packages.
a. What is Gaye’s productivity?
b. Gaye thinks that by redesigning the package she can increase her total
productivity to 150 care packages per day. What would be her new productivity?
c. What will be the increase in productivity if Gaye makes the change?
Solution:
a. P = units produced/input = 120 pkgs/6hrs = 20 pkgs/hr
b. P = units produced/input = 150 pkgs/6hrs = 25 pkgs/hr
c. Increase in productivity = {25 pkgs/hr – 20 pkgs/hr}/20 pkgs/hr = 25 %

Example 8.
Sergio Farmerson makes billiard balls in his famous Boston plant. With recent
increases in his costs, he has a new-found interest in efficiency. Sergio is interested in
determining the productivity of his organisation. He would like to know if his organisation is
maintaining the manufacturing average of 3% increase in productivity. He has the following
data representing a month from last year and an equivalent month this year.

Last Year This Year


Units produced 1.000 1.000
Labour (hours) 300 275
Resin (kgs) 50 45
Capital invested (MU) 10.000 11.000
Energy (kw) 3.000 2.850

a. Show the productivity change for each category and then determine the
improvement for labour hours, the typical standard for comparison.
b. Sergio determines his cost to be as follows:
 Labour 10 MU/hour
 Resin 5 MU/kg
 Capital 1% per month of investment
 Energy 0.50 MU/kw
Show the productivity change, for one month last year versus one month this
year, on a multifactor basis with money units (MU) as the common denominator.
Solution:
a.
Resource Last Year This Year Change Percent Change
Labour 1000/300 = 3.33 1000/275 = 3.64 0.31 0.31/3.33 = 9.3%
Resin 1000/50 = 20 1000/45 = 22.22 2.22 2.22/20 = 11.1%
Capital 1000/10000 = 0.1 1000/11000 = 0.09 -0.01 -0.01/0.1= -10.0%
Energy 1000/3000 = 0.33 1000/2850 = 0.35 0.02 0.02/0.33 = 6.1%

b.
Last Year This Year
Production 1.000 units 1.000 units
Labour hrs@10 MU 3.000 MU 2.750 MU
Resin@5 MU 250 MU 225 MU
Capital cost/month 100 MU 110 MU
Energy@ 0.50 MU 1.500 MU 1.425 MU
TOTAL……………….. 4.850 MU 4.510 MU

Percent change in productivity = {1000/4850 – 1000/4510}/ 1000/4850 = -0.05 fewer


resources = 5%
improvement

Example 9:

The manager of a carpet store is trying to determine optimal installation crew size. He
has tried various crew sizes with the results shown below. Compute the average labour
productivity for each crew size. Which crew size do you recommend?

Crew Size Meters Installed


2 706
4 1308
3 1017
3 1002
4 1288
2 692
Solution:

Crew Size Meters Installed Labour Productivity


2 706 706/2 = 353 meters/ workers
4 1308 1308/4 = 327meters/ workers
3 1017 1017/3 = 339 meters/ workers
3 1002 1002/3 = 334 meters/ workers
4 1288 1288/4 = 322 meters/ workers
2 692 692/2 = 346 meters/ workers

Crew Size Average Labour Productivity

2 (353 + 346)/2 = 349.5 meters/ workers

3 (339 +334 )/2 = 336.5 meters/ workers

4 (327 + 322)/2 = 328.5 meters/ workers

Recommend optimal crew size = 2 workers.

Example 10:

The weekly output of a production process is shown below, together with data for
labour and material inputs. The standard inventory value of the output is 125 MU/unit.
Overhead is charged weekly at the rate of 1500 MU plus 0.5 times direct labour cost.
Assume a 40-hr/ week and an hourly wage of 16 MU. Material cost is 10 MU per
running meter. Compute the average multi-factor productivity for this process.

Week Output # workers Material (meters)

1 412 6 2840

2 364 5 2550

3 392 5 2720

4 408 6 2790

Solution:

Week 1 = 412 (125) MU = 1.444


[6*40*16]MU+[2840*10]MU+ [0.5*6*40*16]MU + 1500 MU

Week 2 = 365 (125) = 1.431


5*40*15 MU+ 2550*10 MU+ 0.5*5*40*16 MU + 1500 MU

Week 3 = 392(125) = 1.463


5*40*16 MU + 2720*10 MU+ 0.5*5*40*16 MU+1500 MU

Week 4 = 408 (125) = 1.457


6*40*16 MU + 2790*10 MU+ 0.5*6*40*16 MU+ 1500 MU

Average = [1.444 + 1.431 + 1.463 + 1.451] / 4 = 1.447

Example 11:

A company has introduced a process improvement that reduces processing time for
each unit, so that output increased by 25% with less material, but one additional worker
required.
Under the old process, five workers could produce 60 units/ hours. Labour costs are
12 MU/ hours, and Material costs (input) was previously 16 MU/unit. For the new process,
material is now 10 MU / unit. Overhead is charged at 1.6 times direct labour cost. Finished
units sell for 31 MU each. What increase in productivity is associated with the process
improvement?
Solution:

Before= 60 units/hr * 31 MU/units = 1860 =

5*12 MU/hour + 60 units/hr *16 MU/units + 1.6[5*12 MU/hr] 1116

=1.667

After = 60 units/hr * 31 MU/units*1.25 = 2.325

6*12 MU/hr + 75 units/hr*10 MU/unit + 1.6 [6*12 MU /hr] 937.2


= 2.481

Productivity increase = [2.481 - 1.667] /1.667 * 100 = 48.83%

Example 12:

Suzan has a part-time “cottage industry” producing seasonal plywood yard ornaments
for resale at local craft fairs and bazaars. She currently works a total of 4 hours per day to
produce 10 ornaments.
a) What is her productivity?
b) She thinks that by redesigning the ornaments and switching from use of wooden glue
to a hot-glue gun she can increase her total production to 20 ornaments per day. What
is her new productivity?
c) What is her percentage increase in productivity?

Solution:

a) Productivity = 10 ornaments/day = 2.5 ornaments/hrs


4 hrs/day

b) Productivity = 20 ornaments /day = 5 ornaments/hrs


4 hrs/day

c) Change in productivity = 5 – 2.5 = 2.5 ornaments /hrs

Percent change = 2.5/2.5 * 100 = 100%.

Example 13:
Suzan’s Ceramics spent 3000 MU on a new kiln last year, in the belief that it would
cut energy usage 25% over the old kiln. This kiln is an oven that turns “green ware” into
finished pottery. Suzan is concerned that the new kiln requires extra labour hours for its
operation. Suzan wants to check the energy savings of the new oven and also to look other
measures of their productivity to see if the change really was beneficial. Suzan has the
following data to work with:

Last Year This year


Production (finished units) 4000 4000
Greenware(kgs) 5000 5000
Labor (hours) 350 375
Capital (MU) 15000 18000
Energy (kWh) 3000 2600
Were the modifications beneficial?

Solution:

Resource Last year This year Change Percent Change

Labour 4000/350 = 11.43 4000/375 = 10.67 = - 0.76 = - 6.7

Capital 4000/15000 = 0.27 4000/18000 = 0.22 = - 0.04 = - 16.7

Energy 4000/3000 = 1.33 4000/2600 = 1.54 = - 0.21 = 15.4

The energy modifications did not generate the expected savings; labour and capital
productivity decreased.