INFO:
Last year, Chop-M-Up, Inc. implemented a new labor process and redesigned its product, hoping to increase input usage efficiency.
At the end of this year, the CEO wants an assessment of the changes on the firm's productivity based on the following data:
|
Last Year
|
This Year
|
|
Output
|
20,000
|
lbs.
|
24,000
|
lbs.
|
|
Output sales price
|
$20
|
per lb.
|
$20
|
per lb.
|
|
Materials
|
16,000
|
lbs.
|
16,800
|
lbs.
|
|
Materials purchases
|
$6
|
per lb.
|
$8
|
per lb.
|
|
Labor
|
10,000
|
DLH
|
9,600
|
DLH
|
|
Labor cost
|
$10
|
per DLH
|
$10
|
per DLH
|
|
Power
|
4,000
|
KWH
|
6,000
|
KWH
|
|
Power cost
|
$2
|
Per KWH
|
$3
|
Per KWH
|
QUESTIONS:
a.Compute the partial operational measures for each input for last year and this year.
Partial productivity for materials:
Last year = This year =
Partial productivity for labor:
Last year = This year =
Partial productivity for power:
Last year = This year =
What can you conclude about productivity improvement?
b.Compute operating income for each year and calculate the total change in profits from last year to this year.
Total change in profit from last year to this year =
c.Calculate the profit-linked productivity measures for this year.
What do these measures suggest about changes in the firm's productivity under the new production system?
d.Calculate the price-recovery component.
Price recovery component =
What does this measure suggest about relationship between the change in productivity and firm profitability this year?