Long Beach Bank employs three loan officers, each working eight hours per day. E

Question

Long Beach Bank employs three loan officers, each working eight hours per day. Each officer processes an average of five loans per day. The bank’s payroll cost for the officers is $820 per day and there is a daily overhead expense of $500. The bank has just purchased new computer software that should enable each bank officer to process eight loans per day, although the overhead expense will increase to $550. a. What is the multifactor productivity before and after implementation of the new software? b. What is the multifactor percentage change in productivity?

Explanation / Answer

a. Multifactor productivity = output/input, where input is in terms of cost of officers as well as overhead expenses.

Output = 5 loans per day per officer. For 3 officers, output = 3*5 = 15 loans.

Input (in $ terms) = $820 cost for all the officers+$500 = $1,320.

Multifactor productivity (loans per dollar) = 15 loans/$1320 = 0.01136 loans per $. This is before implementation of the new software.

Multifactor productivity after implementation of new software: New overhead = $550. Thus Input (in $ terms) = $820 cost for all the officers+$550 = $1,350.

New output = 8 loans per day per officer. For 3 officers, output = 3*8 = 24 loans.

New multifactor productivity = output/input = 24/1370 = 0.017518 loans per $.

b. Multifactor percentage change in productivity = (new productivity - old productivity)/old productivity

= ( 0.017518 - 0.01136)/0.01136

= 0.006154/0.01136

= 54.16%.

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