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Practice Problems: Chapter 1, Operations and Productivity

Problem 1:
Mance Fraily, the Production Manager at Ralts Mills, can currently expect his operation to
produce 1000 square yards of fabric for each ton of raw cotton. Each ton of raw cotton requires 5
labor hours to process. He believes that he can buy a better quality raw cotton, which will enable
him to produce 1200 square yards per ton of raw cotton with the same labor hours.
What will be the impact on productivity (measured in square yards per labor-hour) if he
purchases the higher quality raw cotton?
Answer:
1000 sq yds
Current labor productivity =  200 sq yds per hour
1 ton*5 hours
1200 sq yds
New labor productivity =  240 sq yds per hour
1 ton * 5 hours
Productivity improves 20% = ( 240 - 200 ) / 200 = .2

Problem 2:
C. A. Ratchet, the local auto mechanic, finds that it usually takes him 2 hours to diagnose and fix
a typical problem. What is his daily productivity (assume an 8 hour day)?
Mr. Ratchet believes he can purchase a small computer trouble-shooting device, which will
allow him to find and fix a problem in the incredible (at least to his customers!) time of 1 hour.
He will, however, have to spend an extra hour each morning adjusting the computerized
diagnostic device. What will be the impact on his productivity if he purchases the device?
Answer:
8 hours per day
Current productivity =  4 problems per day
2 hours per problem
7 hours per day
Productivity with computer =  7 problems per day
1 hour per problem
74 3 
Productivity improves 75%    .75 
 4 4 

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Problem 3:
Joanna French is currently working a total of 12 hours per day to produce 240 dolls. She thinks
that by changing the paint used for the facial features and fingernails that she can increase her
rate to 360 dolls per day. Total material cost for each doll is approximately $3.50; she has to
invest $20 in the necessary supplies (expendables) per day; energy costs are assumed to be only
$4.00 per day; and she thinks she should be making $10 per hour for her time. Viewing this from
a total (multifactor) productivity perspective, what is her productivity at present and with the
new paint?
Answer:
Currently Using the new paint
Labor 12 hrs * $10 = $120 12 hrs * $10 = $ 120
Material 240 * $3.50 = $840 360 * $3.50 = $1260
Supplies = $ 20 = $ 20
Energy =$ 4 =$ 4
Total Inputs = $984 = $1404
Productivity 240/984 = 0.24 360/1404 = .26

Problem 4:
How would total (multifactor) productivity change if using the new paint raised Ms. French’s
material costs by $0.50 per doll?
ANS: If the material costs increase by $0.50 per doll:
Using the new paint
Labor 12 hrs * $10 = $ 120
Material 360 * $4.00 = $1440
Supplies = $ 20
Energy =$ 4
Total Inputs = $1584
Productivity 360/1584 = 0.23

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Problem 5:
If she uses the new paint, by what amount could Ms. French’s material costs increase without
reducing total (multifactor) productivity?
Answer:
From the answer to Problem 3 we know the following:
Currently Using the new paint
Labor 12 hrs * $10 = $120 12 hrs * $10 = $ 120
Material 240 * $3.50 = $840 360 * $3.50 = $1260
Supplies = $ 20 = $ 20
Energy =$ 4 =$ 4
Total Inputs = $984 = $1404
Productivity 240/984 = 0.24 360/1404 = .26

We want to know how high the material cost could go, using the new paint, before the
productivity drops to the current level of 0.24. In mathematical terms we make the material cost
a variable (X), set the new multifactor productivity value to the current level, 0.24, and solve for
X.

360/(($12x10) + 360 $(X) + $20 + $4) = 0.24

360 = 0.24($120 + 360$(X) + $20 + $4)
360 = $28.8 + 86.4$(X) + $4.8 + $.96
325.44 = 86.4$(X)
$(X)= 325.44/86.4 = $3.7666  $3.77

It follows then that the new paint could raise Materials cost by no more than approximately
$0.27 (the difference between $3.77 and $3.50) before Ms. French would experience a decrease
in multifactor productivity.

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1. The "father" of scientific management is
Your Frederick W. Taylor
Answer:

2. The three major business functions necessary to all organizations are

Correct marketing, finance/accounting, operations
Answer:

3. The service sector constitutes what percentage of employment in the

United States?
Correct 76.7%
Answer:

4. OM jobs constitute what percentage of all jobs?

Your 40%
Answer:

5. The systematic processing of data to yield information is a part of

Correct information sciences
Answer:

6. Productivity increases when

Your inputs decrease while outputs remain the same
Answer:

7. The capital investment each year in the United States usually

Correct increases
Answer:

8. Productivity increases each year in the United States are the result of
three factors
Your labor, capital, management
Answer:

9. Which appears to provide the best opportunity for increases in

productivity?
Correct management
Answer:

11 Organizations that produce something other than physical products are

called
. Your service organizations
Answer:

13 An insurance adjuster processes the claims of six policy holders in an eight

hour work day. The adjuster uses $5 in gasoline and $3 in forms and office
. supplies to complete the work. What is her labor productivity?
Your 0.75 claims per hour
Answer:

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14 Two car wash employees are paid $7.50 an hour each and are capable of
washing 12 cars per hour, using $1 of water and $2 of soap and other
. cleaning supplies. What is the multifactor productivity of this operation?
Your 0.66 cars per dollar
Answer:

15 When a tangible product is not included in the service, it is called

Correct a pure service
. Answer:

17 Increases in productivity are difficult to achieve if

Your the task is more intellectual and personal
. Answer:

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1. F The production function is clearly visible to the customer in the operations
of both goods and services producers.

2. F Some service providers have no operations function.

3. T A large percentage of the revenue of most firms is spent in the OM

function.

5. T The sale of most goods includes a service.

6. T In the U.S., the service sector provides over 70% of all jobs.

7. F Labor contributes over 50% of the increase in productivity.

8. T One difference between a good and a service is that services are often
produced and consumed simultaneously.

9. F Operations management (OM) is the creation of goods and services.

10. T Operations managers are moving more decision making to the individual
worker. Empowering workers is one of the new trends in operations
management.

11. F Operations managers are increasingly focused on price negotiation with

their suppliers as a means of staying competitive.
Suppliers supply over half the value of products and long-term
relationships cannot be based on zero-sum negotiations.

12. T Productivity in the service sector has proven difficult to improve because it
is typically labor-intensive.

13. F Productivity is the ratio of inputs divided by outputs.

14. F Two bricklayers work together to build a 320 brick wall in an 8 hour work
day. If they are paid $10 per hour, their productivity is $2/brick.

15. T The management productivity variable is the variable that contributes the
most to productivity increases.

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1 Name and briefly describe a viable business that does not have an
. operations function.

There are no viable businesses that do not have an operations function. In order
to create goods and services, all organizations perform three functions. These
  functions are marketing, which generates demand or takes orders,
finance/accounting, which tracks how well the organization is doing, pays bills,
and collects money, and operations, which creates product.

2 The detailing shop at a used car dealership tracks their workers' labor,
. water bills, and consumables on a weekly basis. The data from the last
5 weeks are shown in the table. What is the multifactor productivity for
each week if workers average $10 per hour, water costs $1 per
thousand gallons, and consumables are $5 per ounce?
 
Wee
Labor (hr) Water (gal) Consumables (oz) # cars
k
1 200 8,000 125 100
2 215 10,250 130 90
3 190 7,750 94 80
4 160 7,800 105 74
5 180 9,500 100 84

  Multifactor productivity is calculated by dividing the output by all of the inputs

(labor, water, and consumables)
Week 1
Output = 100 cars; Inputs = 200 hours x $10/hour =$2,000 Labor
8,000 gallons x $1/thousand gallons = $8 water;
125 ounces x $5/ounce = $625 consumables
Productivity = 100 cars/($2,000+$8+$625) = 0.0379 cars/$
 Week 2
Output = 90 cars; Inputs = 215 hours x $10/hour =$2,150 Labor
10,250 gallons x $1/thousand gallons = $10.25 water
130 ounces x $5/ounce = $650 consumables
Productivity = 90 cars/($2,150+$10.25+$650) = 0.0320 cars/$
 Week 3
Output = 80 cars; Inputs = 190 hours x $10/hour =$1,900 Labor
7,750 gallons x $1/thousand gallons = $7.75 water
94 ounces x $5/ounce = $470 consumables
Productivity = 80 cars/($1,900+$7.75+$470) = 0.0336 cars/$
 Week 4
Output = 74 cars; Inputs = 160 hours x $10/hour =$1,600 Labor
7,800 gallons x $1/thousand gallons = $7.80 water
105 ounces x $5/ounce = $525 consumables
Productivity = 74 cars/($1,600+$7.80+$525) = 0.0347 cars/$
 Week 5
Output = 84 cars; Inputs = 180 hours x $10/hour =$1,800 Labor
9,500 gallons x $1/thousand gallons = $9.50 water
100 ounces x $5/ounce = $500 consumables

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 Productivity = 84 cars/($1,800+$9.50+$500) = 0.0364 cars/$ 

3 Rank the three factors that are critical to productivity improvement in

. order from greatest to least impact and briefly discuss each.

Productivity increases are dependent on three productivity variables:

management, which contributes about 52% of the annual increase, capital,
which contributes about 38% of the annual increase, and labor, which
 
contributes about 10% of the annual increase. Management is responsible for
ensuring that the other two factors are effectively used. Capital investment
provides tools for use, and labor uses those tools.

4 Name and describe four differences between goods and services other
. than tangibility.

Services are often produced and consumed simultaneously but a good can be
produced and held in inventory until it is requested by a customer. Services are
often unique but goods are often standardized. Services have a high customer
interaction but goods are usually produced with no customer interaction.
 
Services are often knowledge based and therefore hard to automate, but goods
production can often be automated. Many service producers must be located
within close proximity to their market but many goods producers can locate
where costs are lowest.