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Calculating Multifactor Productivity

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CD players are produced on an automated assembly line process. The standard cost of CD players is $150 per unit (labor $30, materials $70 and overhead $50) the sales price is $300 per unit.

a. To achieve a 10 percent multifactor productivity improvement by reducing materials cost only, by what percentage must these costs be reduced?
b. To achieve a 10 percent multifactor productivity improvement by reducing labor cost only, by what percentage must these costs be reduced?
c. To achieve a 10 percent multifactor productivity improvement by reducing overhead cost only, by what percentage must these costs be reduced?

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Solution Summary

Solution calculates the changes needed in material, labor and overhead costs to achieve a given level of improvement in multifactor productivity.

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a. To achieve a 10 percent multifactor productivity improvement by reducing materials cost only, by what percentage must these costs be reduced?

Cost of labor per unit=L=$30
Cost of material per unit=M=$70
Overhead Cost per unit=OH=50
Output value per unit=P=$300
Multifactor productivity=MFP=P/(L+M+OH)=300/(30+70+50)=2

Desired level of MFP=2*(1+10%)=2.2
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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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