Operations Management
Lecture 6
Productivity: Problems
Key questions
1. How to measure different types of productivity
2. Make decisions based on productivity calculation
Problems!
1.7 Eric Johnson (using data from Problem 1.6) determines his costs to
be as follows:
◆ Labor: $10 per hour
◆ Resin: $5 per pound
◆ Capital expense: 1% per month of investment
◆ Energy: $0.50 per BTU, Show the percent change in productivity for
one month last year
versus one month this year, on a multifactor basis with dollars as the
common denominator
Ex 1: Compute the multifactor productivity measure for an eight-hour day
in which the usable output was 300 units, produced by three workers who
used 600 pounds of materials. Workers have an hourly wage of $20, and
material cost is $1 per pound. Overhead is 1.5 times labor cost.
Ex2: Osborne Industries is compiling the monthly productivity report for its Board of Directors. From the
following data, calculate
(a) labor productivity,
(b) machine productivity, and
(c) the multifactor productivity of dollars spent on labor, machine, materials, and energy. The average labor
rate is $15 an hour, and the average machine usage rate is $10 an hour.
Units produced 100,000
Labor hours 10,000
Machine hours 5,000
Cost of materials $35,000
Cost of energy $15,000
A. 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 Taka/ hours, and Material costs (input) was
previously 16 Taka/unit. For the new process, material is now 10 Taka/
unit. Overhead is charged at 1.6 times direct labour cost. Finished units
sell for 31 Taka each. What increase in productivity is associated with the
process improvement?
B. Student tuition at IBA is $100 per semester credit hour. TRNC
supplements school revenue by matching student tuition $ per $. Average
class size for a typical 3-credit course is 50 students. Labour costs are $ 4
000 per class. Material costs are $ 20 per student per class and overhead
costs are $ 25 000 per class.
[Link] is multifactor productivity?
[Link] instructors work an average of 14hrs/week for 16 weeks for each 3-
credit class of 50 students what is the labour productivity ratio?
C. In normal operations, a plant employs 100 workers working
8 hours a day. In normal operations, productivity averages 30
units per labor-hour worked. If the work level (labor-hours) is
raised above 800, management estimates that average output
per labor-hour falls off at the rate of 2.5 units for each extra
100 labor-hours. Find the work level that maximizes the
output.
Production or output (x)= x (labor-hour)*[30-0.025*(x-800)] (units/labor-
hour)