Question

Question 2 Vera operates a specialty cake shop and she can make and sell 15 specialty cakes per day. The sales price of each specialty cake is $65. Vera works 6 hours per day and she pays herself $20/hr. The material cost for each specialty cakes is S15 and the overhead cost per day is $25. (a) Calculate the daily multifactor productivity. (b) Compute the percentage change on the multifactor productivity under cach of the following situation: (1) ASI increase in material cost for each specialty cake. (i) A 10% decrease in material cost for each specialty cake. (iii) A 10% decrease in daily overhead cost.

Answer 1

Daily input cost = Material cost + Total labor cost + Total overhead

Material cost = No. of cakes * cost per cake = 15 * 15 = $225

Total labor cost = No. of hours * labour per hour = 6 * 20 = $120

Overhead cost = $25

Hence, Daily input cost = 225 + 120 + 25 = $370

Daily output = No. of cakes * Sale price per cake = 15 * 65 = $975

a) Multifactor productivity = Daily output / Daily input cost = 975 / 370 = 2.635

b)

i) If $1 material cost is increased in material cost, New Total material cost = No. of cakes * New material rate = 15 * 16 = $240

New Daily input cost = 240 + 120 + 25 = $385

New multifactor productivity = 975 / 385 = 2.532

Percent Change in multifactor productivity = (2.532 - 2.635) *100 / 2.635 = (-3.91%) = 3.91% decrease in multifactor productivity

ii) If 10% decrease in material cost, New Total material cost = Old material cost * (100% - 10%)= 225 * 90% = $202.5

New Daily input cost = 202.5 + 120 + 25 = $347.5

New multifactor productivity = 975 / 347.5 = 2.806

Percent Change in multifactor productivity = (2.806 - 2.635) *100 / 2.635 = 6.49% increase in multifactor productivity

iii) If 10% decrease in overhead cost, New Total overhead cost = Old overhead cost * (100% - 10%)= 25 * 90% = $22.5

New Daily input cost = 225 + 120 + 22.5 = $367.5‬

New multifactor productivity = 975 / 367.5 = 2.653

Percent Change in multifactor productivity = (2.653 - 2.635) *100 / 2.635 =0.683% increase in multifactor productivity

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