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Unformatted text preview: Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales CHAPTER 16 OPERATIONAL PERFORMANCE MEASUREMENT: FURTHER ANALYSIS OF PRODUCTIVITY AND SALES QUESTIONS 16-1 Productivity is the ratio of output to input. It is a measure of the amount of output produced per unit or per dollar of input. 16-2 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. 16-3 Two of the most often used criteria for assessing productivity and their advantages and disadvantages are: 1. Prior years productivity Advantages: Data readily available Facilitating monitoring of continuous improvements Disadvantages: Difficult to assess adequacy of productivity improvements Changes in productivities from one year to the next may be a result of several factors. The changes might be a result of changes in operating factors such as new equipment, product design, or technology. 2. Best performance of the industry or practice Advantages: Uses of the best practice in the industry or anywhere as the benchmark. A favorable comparison to such a productivity benchmark positions the firm to be the leader of the industry. Motivating people to strive for their maximum potentials. Disadvantages: The standard might be too high and can be frustrating to workers. Difficult to obtain proper data. The benchmark may be inappropriate or not completely comparable for the operation. 16-4 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. 16-1 Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales 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. 16-5 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. 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)....
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This note was uploaded on 03/09/2012 for the course ACCT 310 taught by Professor Achem during the Winter '12 term at DeVry Addison.
- Winter '12