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Can you help me understand this Management question?
Bob Richards, the production manager of Zychol Chemicals, in Houston, Texas, is preparing his quarterly report, which is to include a productivity analysis for his department. One of the inputs is production data prepared by Sharon Walford, his operations analyst. The report, which she gave him this morning, showed the following:
2008
2009
Production (units)
4,500
6,000
Raw material used (barrels of petroleum by-products)
700
900
Labor hours
22,000
28,000
Capital cost applied to the department ($)
$375,000
$620,000
Bob knew that his labor cost per hour had increased from an average of $13 per hour to an average of $14 per hour, primarily due to a move by management to become more competitive with a new company that had just opened a plant in the area. He also knew that his average cost per barrel of raw material had increased from $320 to $360. He was concerned about the accounting procedures that increased his capital cost from $375,000 to $620,000, but earlier discussions with his boss suggested that there was nothing that could be done about that allocation.
Bob wondered if his productivity had increased at all. He called Sharon into the office and conveyed the above information to her and asked her to prepare this part of the report.
Management’s expectation for departments such as Mr. Richards’s is an annual productivity increase of 5%.
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