Question 1
Win Win Clothing has opened four new stores in college towns across the state. Data on monthly
sales volume and labor hours are given below. Which store location has the highest labor
productivity?
Store Annandale Blacksburg Charlottesville Danville
Sales volume $40,000 $12,000 $60,000 $25,000
Labor hours 250 60 500 200
Answer
Output/Input = Sales volume/Labor hours
Store Annandale Blacksburg Charlottesville Danville
Sales volume $40,000 $12,000 $60,000 $25,000
Labor hours 250 60 500 200
Productivity $40000/250 = $12000/60 = $60000/500 = $25000/200 =
$160 $200 $120 $125
Question 2
Win Win’s accountant suggests that monthly rent and hourly wage rate also be factored into the
productivity calculations. Annandale pays the highest average wage at $5.70 an hour; Blacksburg
pays $5.50 an hour; Charlottesville $5 and Danville $4.50. The cost to rent store space is about $1600
a month in Annandale, $2100 in Blacksburg, $1000 a month in Charlottesville, and $800 a month in
Danville.
Output/Input = Output/multifactor input
a) Which store is most productive?
Charlottesville is the most productive
b) Win Win is not sure it can keep all four stores open. Based on multifactor productivity, which
store would you close?
Based on productivity, the Blacksburg store should be closed. Blacksburg has lowest productivity
compared to other three stores.
Store Annandale Blacksburg Charlottesville Danville
Sales volume $40,000 $12,000 $60,000 $25,000
Labor hours 250 60 500 200
Labor cost/hr $5.75 $5.50 $5.00 $4.50
Rent $1600 $2100 $1000 $800
Productivity $40000/( (250 x $12000/( (60 x $60000/( (500 x $25000/( (200 x
$5.75) + 1600) = $5.50) + 2100) = $5.00) + 1000) = $4.50) + 800) =
$13.17 $4.94 $17.14 $14.71
Question 3
Setapak Post Office is evaluating the productivity of its mail processing centers. The centers
differ in the degree of automation, the type of work that can be performed, and the skill of the
workers.
Center 1 2 3
Pieces processed 1,000 2,000 3,000
Workers/hr 10 5 2
Hourly wage rate $5.50 $10 $12
Overhead/hr $10 $25 $50
a) Calculate the multifactor productivity for each center.
b) Workers in Center 1 are scheduled to receive a 10% pay raise next month. How will
that affect productivity?
c) A new processing machine is available for Center 3 that would increase the output to
5000 pieces an hour at an additional overhead rate of $30 an hour. Should they install
the new processing machine?
Answer
Center 1 2 3 C new
Pieces processed 1,000 2,000 3,000 5000
Workers/hr 10 5 2 2
Hourly wage rate $5.50 $10 $12 $12
Overhead/hr $10 $25 $50 $80
Multifactor 15.38 26.67 40.54 48.08
productivity
a) Output/Input = Output/multifactor input
Center 3 is the most productive
b) With a 10% raise in center 1 , productivity goes down to 14.18 pieces per dollar spent
10% from 55 = 5.5
55+5.5= 60.5
1000/(60.5+10)=14.18
c) With new equipment in center 3, productivity goes up to 48 pieces. Install the new
equipment.
Question 4
Jake and his friends sell newspaper ads for the Campus Times to supplement their income
each year. From the data below, determine which person is the most productive.
Jake Josh Jennifer John
# ads sold 100 50 200 35
# hours spent 40 15 85 10
Answer
Jake Josh Jennifer John
# ads sold 100 50 200 35
# hours spent 40 15 85 10
Output/hr 2.50 3.33 2.35 3.50
Output/Input = ads sold/hours spent
Question 5
Sherry Yee is the facilities manager for JY Groceries Store. The store is remodeling and
wants to determine which brand of freezer to use for its frozen goods section. The freezers
vary by size, cabinet type, accessibility, refregerant, and interliner. These variables affect both
the purchase cost and the operating cost (e.g., energy consumption) of each freezer. Currently,
the cost of energy per kilowatt hour (kwh) is $0.10. JY expenses capital purchases over a
three-year period. Assume 365 days in a year. Given the cost and capacity data below,
calculate the “productivity” (i.e., the cubic feet of freezer space per dollor) for each freezer
alternative. Which freezer brand would you recommend to Sherry?
Toshiba Samsung Case JLG
Purchase cost $3,270 $4,000 $4,452 $5,450
Daily energy consumption (kwh) 3.61 3.88 6.68 29.07
Volume (cu ft) 25 35 49 72
Answer
Toshiba Samsung Case JLG
Purchase cost $3,270 $4,000 $4,452 $5,450
Daily energy consumption (kwh) 3.61 3.88 6.68 29.07
Cost per kwh $0.10 $0.10 $0.10 $0.10
Daily energy cost
Daily energy consumption (kwh)
x cost per kwh $0.36 $0.39 $0.67 $2.91
Daily purchase cost
Purchase cost/(3 x 365) 2.99 3.65 4.07 4.98
Total cost
Daily energy cost + Daily
purchase cost $3.35 $4.04 $4.73 $7.88
Volume (cu ft)
25 35 49 72
Productivity (cu ft/$0)
Output/input
Volume/total cost 7.47 8.66 10.35 10.02
Cost/cu ft
Total cost/volume $0.13 $0.12 $0.10 $0.10
I would recommend Case brand to Sherry because Case’s productivity is highest compare to other
brands.
