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    Calculating the desired productivity ratios

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    Alyssa's Custom Cakes currently sells 5 birthday, 2 wedding and 3 specialty cakes each month for $50, $150 and $100 each respectively. The cost of labor is $50 per hour including benefits. It takes 90 minutes to produce a birthday cake, 240 minutes to produce a wedding cake and 60 minutes to produce a specialty cake. Alyssa's current multifactor productivity ration is 1.25

    a.) Assuming each cake costs the same to make, what is the average cost to produce a cake?
    b.) Calculate Alyssa's labor productivity ration in dollars per hour for each type of cake
    c.) Based solely on the labor productivity ration, which cake should Alyssa try to sell the most
    d.) Based on your answer in part (a) is there a type of cake Alyssa should stop selling?

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    Solution Preview

    a.) Revenue from selling 5 birthday cakes=5*50=$250
    Revenue from selling 2 wedding cakes=2*150=$300
    Revenue from selling 3 specialty cakes=3*100=$300

    Total output (Revenue)=250+300+300=850
    Total cakes sold=5+3+2=10

    Multifactor productivity=MFP=1.25

    We know that MFP=Total output (Revenue)/Total input ...

    Solution Summary

    Solution describes the steps to calculate the desired productivity measures in the given case.