1. The weekly output of a fabrication process is shown below together with data
ID: 394355 • Letter: 1
Question
1. The weekly output of a fabrication process is shown below together with data for labor and material costs. Overhead is charged weekly at the rate of 1.5 times direct labor cost. Assume a 40-hour week and an hourly wage of $20.
(1) What is the multifactor productivity for each of the three weeks?
(2) Based on your computation of (1), what is the growth rate (in percentage) of multifactor productivity from week 1 to week 2 and week 2 to week 3?
Week
Output
No. of workers
Material costs
1
52000
7
18000
2
55000
8
22000
3
56000
7
20000
Week
Output
No. of workers
Material costs
1
52000
7
18000
2
55000
8
22000
3
56000
7
20000
Explanation / Answer
Explanation 1:
Labor cost= No. of labor*total week working hours*hourly wage
Material cost= As Given
Overhead cost= Labor cost*1.5
Total cost= Labor cost+ Material cost+ Overhead cost
Week
Output
Labor cost
(No. of labor*total week working hours*hourly wage)
Material cost
Overhead cost
(Labor cost*1.5)
Total cost
(Labor cost+
Material cost+
Overhead cost)
MFP
(Output/Total cost)
1
52,000
7*40*20=
5600$
18000$
5600*1.5=
8400$
32000$
1.62
2
55,000
8*40*20=
6400$
22000$
6400*1.5=
9600$
38000$
1.45
3
56,000
7*40*20=
5600$
20000$
5600*1.5=
8400$
34000$
1.65
Answer: MFP = Output/Total cost
Explanation 2:
Growth rate in MFP from week 1 to week 2= ((MFP2 – MFP1)/ MFP1) *100
= ((1.45-1.62)/1.62) *100
= -10.5% (Answer)
Growth rate in MFP from week 2 to week 3= ((MFP3 – MFP2)/ MFP2) *100
= 13.8% (Answer)
Week
Output
Labor cost
(No. of labor*total week working hours*hourly wage)
Material cost
Overhead cost
(Labor cost*1.5)
Total cost
(Labor cost+
Material cost+
Overhead cost)
MFP
(Output/Total cost)
1
52,000
7*40*20=
5600$
18000$
5600*1.5=
8400$
32000$
1.62
2
55,000
8*40*20=
6400$
22000$
6400*1.5=
9600$
38000$
1.45
3
56,000
7*40*20=
5600$
20000$
5600*1.5=
8400$
34000$
1.65
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