Question

As the cost accounting manager at Cambria Chemicals (CC), you are responsible for compiling and reporting various performance measures to the senior managers. The company instituted many efficiency improvement programs recently, and the CFO has asked you to measure and report partial productivity for both labor and materials. Data for the last two years follow.

	Year 2			Year 1
Gallons input (thousands)		9,000			8,000
Labor-hours (thousands)		10,000			7,600
Gallons of output (thousands)		10,800			8,800

From the accounting records, you also gather the following information for the two years.

	Year 2				Year 1
Cost of inputs (per gallon)	$	85			$	90
Wage rate (per hour)	$	22			$	19
Total manufacturing overhead	$	1,280,000			$	1,160,000
Selling price of output (per gallon)	$	360			$	370

Required:

a. Compute the total factor productivity measures for year 1 and year 2 based on the three inputs (material, labor, and overhead).

Total Factor Productivity: Year 2? Year 1?

Answer 1

Total productivity = Value of output ÷ Value of inputs (materials, labor, and overhead).

Year 1

Total output ($370*8800) =                                                          $3256000

value Materials value ($90*8000) = $720000

Labor value ($19*7600) = 144400

Overhead value = 1160000 $2024400

Total factor productivity ($3256000/2024400) =                               1.61

Year 2

Total output value ($360*10800) =                                                  $3888000

Materials value ($85*9000) = $765000

Labor value ($22*10000) = 220000

Overhead value = 1280000                                                   $2265000

Total factor productivity ($3888000/2265000) =                              1.72