The following data are given for a caterer in Washington, DC: Last Year This yea

Question

The following data are given for a caterer in Washington, DC:

   Last Year                            This year

Volume of materials used                   12,000 units                            14,000 units

Average raw materials cost                 $9.00/unit                                $11/unit

Labor hours used:                               21,000 hours                           19,500 hours

Cost of labor:                                      $14 per hour                            $14.50 per hour

Energy                                                 $20,000                                   $22,000

Other overhead costs                          $5,000                                    $8,000

Quantity sold                                      90,000 units                            95,000 units

Selling price                                        $12/unit                                  $12.50/unit     

(a)    Determine the partial productivity for labor for each year.

(b)   Determine multi-factor productivity for labor & materials for each year.

(c)    Determine the total factor productivity for each year.

(d) The manager believes that increased labor cost is having adverse effect on the

firm’s overall productivity. Do you agree? (Please support your answer with appropriate computations).

Explanation / Answer

productivity of labor=quantity sold/ labor hours. last year= 90000/21000= 4.5. this year- 4.87

material productivity= quantity sold/ material used. last year-90000/12000=7.5, this year-6.78

total factor productivity=sum of two factor productivity. last year= 4.5+7.5=12, this year=11.65

increase in labor cost increases total cost so it has adverse effect

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