*Please show detailed steps on how you got the answer! Thank you! In 2013, Gibis

ID: 442086 • Letter: #

Question

*Please show detailed steps on how you got the answer! Thank you!

In 2013, Gibison's Auto Repair invested in a computer diagnostic machine that reads codes on a car's computer, thereby shortening the time it takes to determine what is wrong with a car. Consider the figures below:

Year Sales ($000s) Labor costs ($000s) Machine costs ($000s)

2010, $2,468 ,$987, $0

2011, $2,838, $1,192, $0

2012, $3,085, $1,172, $0

2013 $3,702 $1,074 $150

2014, $4,072, $1,140, $150

2015, $4,319, $1,166, $150

a. Calculate the labor productivity for each of the six years. How much has labor productivity improved since the diagnostic machine was brought in?

b. Calculate the multi-factor productivity score for each year, where the "input" is the total amount spent on labor and the diagnostic machine.

Next, calculate the average multi-factor productivity score for years 2010 - 2012, and years 2013 - 2015. According to the results, was it worthwhile for Gibson to invest in the diagnostic machine? Why or why not?

Explanation / Answer

Year

Sales

Labor Cost

Machien Cost

Labor Productivity = Sales/Labor cost

Multi Factor Productivity= Sales/(Labor+Machine)

2010

2468

987

2.500506586

2011

2838

1192

2.380872483

2012

3085

1172

2.63225256

2013

3702

1074

150

3.446927374

3.024509804

2014

4072

1140

150

3.571929825

3.156589147

2015

4319

1166

150

3.704116638

3.281914894

Improvement in Labor productivity=(Average labor productivity after Machine/ Average labor productivity before Machine)-1

Improvement in Labor productivity=((3.4+3.6+3.7)/3)/ ((2.5+2.4+2.6)/3)-1=42.7%

Average Multifactor productivity Score 2010-2012 =(2.5+2.4+2.6)/3=2.5

Average Multifactor productivity Score 2013-2015 =(3+3.2+3.3)/3=3.2

Improvement in Multi factor Labor productivity=3.2/2.5-1=28.00%

Since Improvement in multifactor productivity is positive, it was worthwhile for Gibson toINVEST in the diagnostic machine.