Maria Enterprise makes a variety of consumer electronic products. Its camera manufacturing plant is considering choosing between two different processes, named Alpha and Beta, which can be used to make a component part. To make the correct decision, the managers would like to compare the labour and total productivity of process Alpha with that of process Beta. The value of process output for product A is $175 per unit and product B is $140 per unit. The overhead costs are $6,000 for process Alpha and $5,000 for process Beta.

Process Alpha Process Beta

Product A B A B

Output (units) 50 60 30 80

Labour ($) $1,200 $1,400 $1,000 $2,000

Material ($) $2,500 $3,000 $1,400 $3,500

(a) Which process, Alpha or Beta, is more productive in terms of both labour and total productivities? (Ans. total productivity alpha=1.216, Beta=1.275.)

(b) What conclusions can you draw from your analysis?

A) labor productivity = total output / total labor costs

process Alpha's labor productivity = $17,150 / $2,600 = 6.6 ⇒ more productive process Beta's labor productivity = $16,450 / $3,000 = 5.48

total productivity = total output / total costs

process Alpha's total productivity = $17,150 / $14,100 = 1.22 process Beta's total productivity = $16,450 / $12,900 = 1.28 ⇒ more productive

B) Since process Beta's total productivity is higher than process Alpha's, then it should be chosen. Total productivity is more important than labor productivity since it measures the total efficiency of the different processes.

Explanation:

process Alpha:

product output labor materials overhead revenue

A 50 $1,200 $2,500 $6,000 $8,750

B 60 $1,400 $3,000 $8,400

total $2,600 $5,500 $6,000 $17,150

profit = $17,150 - $2,600 - $5,500 - $6,000 = $3,050

process Beta:

product output labor materials overhead revenue

A 30 $1,000 $1,400 $5,000 $5,250

B 80 $2,000 $3,500 $11,200

total $3,000 $4,900 $5,000 $16,450

profit = $16,450 - $3,000 - $4,900 - $5,000 = $3,550