Ch 16 HW Solutions-1

Ch 16 HW Solutions-1 - 16-2 Discuss why improving...

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16-2 Discuss why improving productivity is important for a firm that competes on a cost leadership strategy. 16-4 What is operational productivity? Financial productivity? 16-5 What is partial productivity? Total productivity? 16-10 “An activity productivity measure such as machine-hour productivity is more important in a JIT environment than in a non-JIT environment.” Do you agree? To be a successful low cost provider in its industry a firm needs to be able to manufacture the product using fewer resources - materials, labors, or other resources - than its competitors. Improving productivity is the best strategy to attain more products or services with fewer resources. An operational productivity is the conversion ratio of an input resource to the output. It is a physical measure on the unit of output produced from one unit of a resource. A financial productivity measures the relationship between the output and the cost of one or more of the input resources. It is a measure of the unit of output or the sales values of output produced per dollar of one or more resources. A partial productivity is a productivity measure that focuses only on the relationship between the amount of one input and the output attained. Both the input (denominator) and the output (numerator) can be either in unit or in dollar amount. A total productivity measures the relationship between the output and the total cost of all the required input resources to produce the output. The output (numerator) can be in unit or sales value of the output manufactured. However, the input (denominator) is in dollar amount (cost of the input resources). Measurements of productivity help managers to improve operations of both JIT and non-JIT firms. However, a JIT firm is more likely to have less low-value-added activities than a non-JIT firm. Thus, the effect of activity productivity measures can readily be seen in a JIT firm.
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Exercise 16-29 Partial Financial Productivity and Total Productivity 2009 2010 Output units 400,000 486,000 Direct manufacturing labor-hours 10,000 13,500 Wages per hour $26 $25 Direct materials used (tons) 160 180 Direct materials cost per ton $3,375 $3,125 Required Carry all computations to four digits after the decimal point. 1. Compute the partial financial productivity for both manufacturing factors for 2009 and 2010. 2. Calculate RFD's total productivity in units per dollar in 2009 and 2010. 3. Evaluate management's decision in 2009 to substitute one production factor for another. Solution (20 min) 2009 2010 400,000 486,000 Quantity 160 180 Unit cost $3,375 $3,125 Total direct materials cost $540,000 $562,500 0.7407 0.864 (4) Direct labor: Hour spent 10,000 13,500 Hourly wage $26 $25 Total direct labor cost $260,000 $337,500 (5) DL financial partial productivity (1) / (4) $1.5385 $1.4400 2009 2010 (1) Output 400,000 486,000 Total cost: Direct materials cost $540,000 $562,500 Direct labor cost 260,000 337,500 (2) Total cost $800,000 $900,000 (3) Total productivity (1) / (2) $0.50 $0.54 RFD Corporation makes small parts from steel alloy sheets. Management has the flexibility to substitute direct materials for direct manufacturing labor. If
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This note was uploaded on 02/01/2012 for the course AIS 310 taught by Professor Art during the Spring '11 term at Atlanta Met.

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Ch 16 HW Solutions-1 - 16-2 Discuss why improving...

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