Productivity Measurement, Technical and Allocative Efficiency, Partial Measures

Bellamy Company produces handcrafted pottery that uses two inputs: materials and labor. During the past quarter, 36,000 units were produced, requiring 144,000 pounds of materials and 72,000 hours of labor. An engineering efficiency study commissioned by the local university revealed that Bellamy can produce the same 36,000 units of output using either of the following two combinations of inputs:

	Combination F1	Combination F2
Inputs:
Materials	108,000	118,800
Labor	54,000	50,400

The cost of materials is $12 per pound; the cost of labor is $18 per hour.

Required:

1. Compute the output-input ratio for each input of Combination F1. If required, round your answers to two decimal places.

Materials	fill in the blank 1
Labor	fill in the blank 2

Does this represent a productivity improvement over the current use of inputs?

YesNoYes

What is the total dollar value of the improvement? $fill in the blank 4

Classify this as a technical or an allocative efficiency improvement.

Allocative efficiencyTechnical efficiencyTechnical efficiency

Finally, describe which data analytic types were used in addressing these issues (descriptive, diagnostic, predictive, and prescriptive; see Exhibits 2.5 and 2.6, for a brief review).

The calculation of the current productivity ratios is

descriptivediagnosticpredictiveprescriptivedescriptive

, as it describes what it is. The calculation of the F1 productivity ratios is

descriptivediagnosticpredictiveprescriptivepredictive

.

2. Compute the output-input ratio for each input of Combination F2. If required, round your answers to two decimal places.

Materials	fill in the blank 8
Labor	fill in the blank 9

Does this represent a productivity improvement over the current use of inputs?

YesNoYes

Now, compare these ratios to those of Combination F1. What has happened? F2 has

lowerhigherlower

productivity for materials and

lowerhigherhigher

productivity for labor.

3. Compute the cost of producing 36,000 units of output using Combination F1. $fill in the blank 13

Compare this cost to the cost using Combination F2.

Cost of Combination F1	$fill in the blank 14
Cost of Combination F2	fill in the blank 15
Difference	$fill in the blank 16

Does moving from Combination F1 to Combination F2 represent a productivity improvement?

YesNoNo

What would be your recommendation to Bellamy?

Overall, Combination F1 produces the

greatestlessergreatest

productivity improvement for Bellamy

morelessmore

than Combination F2.

4. Some would argue that the entire productivity analysis from start to finish is an example of a prescriptive data analytic model. What case would you make to support this position?

A

descriptivediagnosticpredictiveprescriptiveprescriptive

data analytic model produces an outcome that tells the decision maker what should be done.