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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-32 Financial Partial Productivity and Total Productivity (20 min)
1. Financial partial productivity:
Prior year Current year
(1) Output 400,000 490,000
(2) Direct materials:
Quantity 160 180
(3) DM financial partial productivity (1) / (2) 0.7407 0.8376
(4) Direct labor:
Hours used 10,000 13,500
2. Total productivity:
Prior year Current year
(1) Output 400,000 490,000
Total cost:
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-32 (continued -1)
3. The decision was a good one. The direct labor productivity per direct
labor dollar decreased from 1.5385 units of output last year to 1.5123
in the current year. However, direct materials productivity improved
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-33 Operational and Financial Partial Productivity (20 min)
1. Operational Partial Productivity : number of calls handled per
engineer
2. Financial Partial Productivity
3. Hiring of engineers with two years’ experience increased financial
partial productivity slightly. Although the firm paid the experienced
engineers higher salaries, on average each of these engineers was
able to answer more calls than newly graduated engineers.
Experienced engineers are likely to provide better services in
quality and quick response than those provided by new graduates
4. Among other factors that the firm needs to consider are:
quality of the service provided
customer satisfaction
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-34 Productivity: Which Way to Lean? (15 min)
1. Productivity measures can help a company become more efficient
by providing key measures that the company can track on a
2. The Toyota Production System (TPS) is a system designed to
reduce waste and improve quality in manufacturing. The main
elements of TPS are:
(1) a long term focus on relationships with suppliers, and
For additional resources on lean manufacturing and lean accounting,
see two Statements on Management Accounting by the Institute of
Management Accountants: Frances A. Kennedy and Brian H.
Maskell, “Accounting for the Lean Enterprise: Major Changes to the
Accounting Paradigm,” and Frances A Kennedy and Brian H.
Maskell, “Lean Enterprise Fundamentals”; at
http://www.imanet.org/resources_and_publications.aspx
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-35 Quality and Productivity (20 min)
This question is intended for class discussion. The objective is to try to
balance the strategic success factors within an automotive company. The
answers are likely to vary. Here are some points to bring out in the
discussion:
In the longer term, a car’s success in the market is determined by its
acceptance by the customer, not productivity. This means attention
to quality and design. The car must satisfy the customers’
from productivity should be considered within the context of the cost
of quality
The Toyota Production System is a good model of a system that is
designed to achieve both quality and productivity
Useful reading on this matter: Dan Slater, “In the Race for Success,
Quality is More Important than Productivity,” Manufacturing & Technology
News (www.manufacturingnews.com/news/editorials/slater.html ). See
also, Matthew Boyle, “Cutting Costs Without Cutting Jobs,” Business
Week, March 9, 2009, p. 55.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-36 Productivity and the Economy (20 min)
This question is intended for class discussion. Answers are likely to vary.
Here are some points that could be brought up in the discussion.
It is clear from the BLS predictions and preliminary quarterly measures for
2009 that the rate of productivity increase has fallen from the levels of the
prior few years. Some would argue that the very high rates in 2002 and
that the recent investments may carry forward for several years beyond
2009.
As in the period of 2000-2001, significant employment reductions have had
the effect of boosting productivity. Note the increase in 2009. The increase
in productivity continued into 2010 with an annual productivity of 4.1, the
highest since 2002. However, the first half of 2011 showed a decline in
productivity which are difficult to maintain without further layoffs which are
not indicated by the strengthening economy in 2010-11.
Most economists accurately predicted that productivity would increase in
2009 - 2010, but these economists are advising that the next few years will
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-36 (continued -1)
U.S. Census Bureau (capital investment data; most recent data in October
2011 was for the year 2009):
http://www.census.gov/compendia/statab/cats/business_enterprise/investm
ent_capital_expenditures.html
Bureau of Labor Statistics (nonfarm business productivity):
http://data.bls.gov/timeseries/PRS85006092
Useful additional sources: “America’s Productivity Growth Has Slowed;
Does that Matter?” The Economist, April 16, 2007; “Not Dead, Just
Resting,” The Economist, October 11, 2008, p. 18; Productivity Falls for
Second Quarter in a Row,” The Wall Street Journal, August 10, 2011, p.
B9; “A Jump in Labor Costs,” Bloomberg Businessweek, August 29, 2011,
p. 16.
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-37 Alternative Measures of Productivity (20 min)
The measure based on manufacturing capacity utilization has a meaningful
interpretation in the sense that it captures the rate of utilization of invested
dollars. It ties in very well with the concept of return on assets (net income
over total assets), a key measure of business performance that is covered
in chapter 19. Managers and investors would like to see high return on
assets and high utilization of capacity. So this measure of productivity is
Productivity as measured by output/input, as developed in this chapter is
typically focused on the labor force and labor productivity. Total financial
productivity also measures the output relative to total cost. These
For capacity utilization data, see:
http://www.federalreserve.gov/releases/g17/current/
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-38 Productivity Measures for Call Centers (20 min)
The measure proposed, number of calls/number of hours, is a common and
intuitive measure of productivity. The management of the call center could
track this productivity over time to (1) assess the productivity of the call
center staff (how long it takes to respond to a call) and (2) the overall
any problems or questions they have. This type of customer service will
build customer loyalty which is a key to overall profitability, as noted in the
section on customer profitability analysis in chapter 5. Thus, multiple
the key question: how satisfied is the customer with the service received?
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Chapter 16 - Operational Performance Measurement: Further Analysis of Productivity and Sales
16-39 Sales Volume, Sales Quantity, and Sales Mix Variances (30 min)
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