business problem and result interpretation Document Preview: Assignment 1 4 Two types of cars (Deluxe and Limited) were produced by a car manufacturer. Quantities sold, price per unit, and labor...

Assignment 1
Assignment 1
4 Two types of cars (Deluxe and Limited) were produced by a car manufacturer. Quantities sold,
price per unit, and labor hours follow. What is the labor productivity for each car? Explain the
problem(s) associated with the labor productivity.


ANS:
- Labor productivity = Total output (in $) / total labor inputs (in $)

(1) For Deluxe car,
- Labor productivity = 4000 units sold x $8000 per car / (20,000 hours x $12 per hour)
= $ 32,000,000 / $ 240,000
= 133.33
- Hence, each $ spent on labor generates $ 133.33 by making a deluxe car.

(2) For Limited car,
- Labor productivity = 6000 units x $9500 per car / (30,000 hours x $ 14 per hour)
= $ 57,000,000 / $ 420,000
= 135.71
- Hence, each $ spent on labor generates $ 135.71 by making a limited car.

Problems of labor productivity:
- Labor productivity is nor an accurate measure of efficiency. It just state how much labor
cost incured in producing outputs. Although output depends on labor input, however it
depends on many other parameters such as supply chain efficiency, systems in place
(inventory, forecasting, marketing etc), market demand, product quality etc.
- Hence only a higher number of labor productivity does not necessarily mean that the
operation is more efficient.
- Also, at times of changing demand (going up or down) labor productivity number will suffer
badly, as no one can plan labor according to variable demand. In that case, labor
productivity number will give wrong signals to managers, it will also temp them to reduce
the labor cost by lying off, while it may turn out to be...