Question

A property title search firm is contemplating using online software to increase its search productivity. Currently an average of 40 minutes is needed to do a title search. The researcher cost is $2 per minute. Clients are charged a fee of $400. Company A’s software would reduce the average search time by 10 minutes, at a cost of $3.50 per search. Company B’s software would reduce the average search time by 12 minutes at a cost of $3.60 per search. Which option would have the higher productivity in terms of revenue per dollar of input?

Answer 1

Answer: Company B

Step-by-step explanation:

Current company:

Average time = 40 minutes

Cost = Average time x researcher cost

= 40 x $2

= $80

`Productivity\ per\ dollar\ inpt= (Total\ fee\ charged)/(cost)`

`Productivity\ per\ dollar\ inpt= (400)/(80)`

= $5

Company A:-

Company A will reduce the current average time by 10 minutes

Average time = 40 - 10

= 30 minutes

Cost per search = $3.50

Cost = Average time x Researcher cost + cost per search

= 30 x $2 + $3.50

= $63.50

`Productivity\ per\ dollar\ inpt= (Total\ fee\ charged)/(cost)`

`Productivity\ per\ dollar\ inpt= (400)/(63.50)`

= $6.29

Company B:-

Company B will reduce the current average time by 12 minutes

Average time = 40 - 12

= 28 minutes

Cost per search = $3.60

Cost = Average time x Researcher cost + cost per search

= 28 x $2 + $3.60

= $59.60

`Productivity\ per\ dollar\ inpt= (Total\ fee\ charged)/(cost)`

`Productivity\ per\ dollar\ inpt= (400)/(59.60)`

= $6.71

The revenue per dollar of input of:

Current Company = $5,

Company A = $6.29 and

Company B = $6.71.

The highest productivity in terms of revenue per dollar of input is provided by Company B.