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Andrew Brown

MAN4504

Operations Management
Unit 1 Assignment

Problem 1: (15 pts). Gowdie LC produces low-cost, highly durable guitars for beginners.
Typically, out of the 100 guitars that begin production each month, only 80 percent are
considered good enough to sell. The other 20 percent are scrapped due to quality problems that
are identified after they have completed the production process. Each guitar sells for $250.
Because some of the production process is automated, each guitar only require 10 labors hours.
Each employee works an average 160 hours per month and has all weekends off. Labor is paid at
$10/hour, materials cost is $40/guitar, and overhead is $4,000.
a. Calculate the labor and multifactor productivity ratios.
Labor productivity = Guitars made/Employee hours
= 100/160 = .63 guiters per hour
Labor Productivity ratio= .63 guitars per hour
Multifactor Productivity ratio = Value of Output/(Labor + Materials + Overhead)
Value of Output= Sellable Guitars X Price
= 80 X $250 = $20,000
Labor = employee hours X pay rate
=160 X $10 = $1600
Materials = $40 X 100 = $4000
Overhead = $4000
Multifactor Productivity ratio = $20,000/($1600 + $4000 + $4000)
= $20,000/$9600
=2.08
b. After some study, the operations manager Darren Funk recommends three options to improve
the companys multifactor productivity: (1) increase the sales price by 10 percent, (2) improve
quality so that only 10 percent are defective, or (3) reduce labor, material, and overhead costs
by 10 percent. Which option has the greatest impact on the multifactor productivity measure? I
Feel using all three options would be the ideal way for maximizing profit. IF I were only able to
pick one I would chose option 3 as it allows for the biggest decrease in costs.

Problem 2: (15 points) The local University is planning to increase the season ticket price to
$192. In addition, improved recruitment will increase overhead costs to $30,000 per class section
from the current $25,000 per class section. The universitys budget plan is to cover recruitment
costs by increasing the average class size to 80 students. Labor costs will increase to $ 6,500 per
3-credit course. Material costs will be about $30 per student for each 3-credit course. Tuition will
be $ 250 per semester credit.
a. What is the multifactor productivity ratio?
Multifactor Productivity ratio = Value of Output/(Labor + Materials + Overhead)
Value of Output = 80 students x 3 credit hours X $250 tuition = $60,000/ class
$6500 + ($30 x 80 students) + $25,000 = $33,900/ class
$60,000/$33,900 = 1.77
Multifactor Productivity Ratio = 1.77
b. Provide two ways to improve the multifactor productivity by 15%?
Reduce Labor costs, reduce material costs, increase enrollment or increase tuition are the
suggestions I have for improving the multifactor productivity.
c. If instructors work an average of 20 hours per week for 16 weeks for each 3-credit class
of80 students, what is the labor productivity ratio?
Labor productivity = Output/Input
Input = 20 hours per week x 16 weeks = 320 hours per class
Labor Productivity = $60,000/320hrs = $187.50/hr

Andrew Brown
MAN4504

Operations Management
Unit 1 Assignment

Problem 3: (15 points) Buds and Duds Coin Laundry washed and pressed the following
numbers of dress pants per week.
Week
Staff
Total Hours
Pants
1
Bud & Tod
24
68
2
Bud & Jud
46
130
3
Bud, Tod & Jud
62
152
4
Bud, Tod & Jud
51
125
5
Tod & Jud
45
131

a. Calculate the labor productivity ratio for each week. (Specify the unit of you result)
Labor productivity ratio = Output/input
o Week 1 68/24 = 2.83 pants per hour
o Week 2 130/46 = 2.82 pants per hour
o Week 3 152/62 = 2.45 pants per hour
o Week 4 125/51 = 2.45 pants per hour
o Week 5 131/45 = 2.91 pants per hour
b. Does Labor productivity increase or decrease when all three employees are working? Explain
why?
Labor productivity decreases when all three employees are working. One could assume
that the presence of that many employees contributes to the lack in productivity. I imagine
the employees are doing other things rather than their work at hand.
Problem 4: (15 Points) Nicole Allen, owner of Allen Inc. is evaluating whether to introduce a
new product line. After thinking through the production process and the costs of raw materials
and new equipment, Nicole estimates the variable costs of each unit produced and sold at $6
dollars and the fixed costs per year at $60,000.
a. If the selling price of the product is set at $18 each, how many units must be sold for the
company to break even?
Break even = Fixed cost / (price cost)
Break even = 60,000/(18-6)
Break even = 20,000 units
b. What must be the selling price per unit to break even if 6,000 units are sold?
Break even = 20,000 x $18 = $360,000
$360,000/6000 units = $60 selling price
c. Nicole forecasts sales of 10,000 units for the year if the selling price is set at $14 each. What
would be the total margin contribution to profits from this new product for the year?
Contribution margin = Price per product variable cost per product
CM = 14-6
Contribution margin = $8
d. If the selling price is set at $12.50 Nicole forecasts an increase in sales to 15,000 units for the
year. Which pricing strategy ($14 or $12.50) would result in greater contribution to profits?
$14 would be the option that offers greater contribution to profits.

Andrew Brown
MAN4504

Operations Management
Unit 1 Assignment

Problem 5: (15 points) Clarke, Davis and Molina, a group of student from the Operations
Management class recently form a company CDM Corporation. The company (CDM) received a
large order for special military uniforms to be used in an urgent military operation. Working the
normal two shifts of 40 hours each per week, the CDM production process usually produces 2,500
uniforms per week at a standard cost of $120 each. Seventy employees work the first shift and
30 employees work the second. The contract price is $200 per uniform. Because of the urgent
need, CDM Corp. is authorized to use around-the-clock production, 6 days per week. When each
of the two shifts works 72 hours per week, production increases to 4,000 uniforms per week but
at a cost of $144 each.
a. Did the multifactor productivity ratio increase, decrease, or remain the same when comparing
the normal shift with the overtime shift? If it changed, by what percentage did it change?
Multifactor Productivity ratio = Value of Output/(Labor + Materials + Overhead) The ratio
increased.
b. Did the labor productivity ratio increase, decrease, or remain the same? If it changed, by what
percentage did it change?
Labor productivity = Output/Input
c. Did weekly profits increase, decrease, or remain the same?
Weekly profits increased.

Problem 6: (15 points) MP3 Players are produced using an automated assembly line process.
The standard cost of MP3 players are $40 for labor; materials $60 and overhead $50. Each MP3
player is sold for $300. The college is hiring you to help improve the multifactor productivity.
a. What are the different options you can consider to achieve this improvement?
I would consider the factors involved with sourcing materials and the manufacturing
process when looking into improving the multifactor productivity.
b. You want to achieve 10% increase in multifactor productivity by changing the costs of
materials only. Will you increase or decrease the costs of materials? What should be the new
value of these costs? What is the percentage change of the costs of materials?
To achieve a 10% increase in multifactor productivity by changing the cost of materials I
would decrease the cost of materials. The percentage of the change should be 20%
c. If you decrease the overhead by 20%, by what percentage will the multifactor productivity
decrease or increase?
Decreasing the overhead by 20% will increase the multifactor productivity by 10%.

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