Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 36

Productivity and the Economy The U.S. Bureau of Labor Statistics (www.bls.gov) provides quarterly data for productivity in business, nonfarm business, and manufacturing industries. The Bureau also breaks down this data into industry segments. The data for the annual percentage change in productivity for the recent decade is as follows, for the category of business productivity. Preliminary data show that the productivity rate for 2008 will be similar to that for 2007.

Year	Percentage Change
1997	1.6
1998	2.8
1999	2.9
2000	2.8
2001	2.5
2002	4.1
2003	3.7
2004	3.0
2005	2.3
2006	2.1
2007	1.4

Required Economists argue that the changes in productivity are influenced by changes in the economy, for example, the economic downturn of 2000-2001 as well as the current recession which started in 2007. Others argue that productivity is most affected by advances in and adoption of information technology, investments in research and development, and capital investment in new plant and equipment—more highly automated and efficient manufacturing facilities. The data above show that productivity appears to be on the decline in the period 2005-2008. In 2008, capital investment was sluggish as was the pace of innovation and adoption of information technology. What do you forecast the productivity rate will be for 2008 and the following couple of years?

Step 1 of 2

Financial productivity: It can be defined as the benefit received from each 1 $ spend on the manufacturing process. It can be calculated by dividing the output received from the total costs incurred to receive the output.