Question

The Big Black Bird Company​ (BBBC) has a large order for special​ plastic-lined military uniforms to be used in an urgent military operation. Working the normal two shifts of 40hours each per​ week, the BBBC production process usually produces 2 comma 600uniforms per week at a standard cost of ​$125each. 72 employees work the first shift and 32the second. The contract price is ​$240per uniform. Because of the urgent​ need, BBBC is authorized to use​ around-the-clock production six days per week. When each of the two shifts works 72hours per​ week, production increases to 3 comma 800 uniforms per week but at a cost of ​$152 each.

a. Did the multifactor productivity ratio increase, decrease or remain the same? If it changed, by what percentage did it change?
b. Did the labor productivity ratio increase decrease or remain the same? If it changed, by what percentage did it change?
c. Did weekly profits increase decrease, or remain the same?

Answer 1

first we must calculate the original value of the goods produced = $240 x 2,600 = $624,000

original cost = $125 x 2,600 = $325,000

original amount of labor used = (72 + 32) x 40 = 4,160 hours

value of goods after change = 3,800 x $240 = $912,000

cost after change = 3,800 x $152 = $577,600

labor used after change = (72 + 32) x 72 = 7,488 hours

a) original multifactor productivity = $624,000 / $325,000 = $1.92 per dollar spent

multifactor productivity after change = $912,000 / $577,600 = $1.58 per dollar spent

multifactor productivity decreased by 17.71%

b) original labor productivity = $624,000 / 4,160 hours = $150 per labor hour

labor productivity after change = $912,000 / 7,488 hours = $121.79 per labor hour

labor productivity decreased by 18.81%

c) change in weekly profits = ($912,000 - $577,600) - ($624,000 - $325,000 = $35,400 increase