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

Exercise 37

Alternative Measures of Productivity A common measure of productivity, as explained in this chapter and as used by many business and trade organizations including the U.S. Bureau of Labor Statistics, is the ratio of output to input, where input is typically measured in units of materials, labor hours, or related measures. An alternative is to use the ratio of capacity available to capacity utilized. For example, the amount of capacity in the U.S. manufacturing industries has continued to increase over the last two decades (an 88 percent increase from 1980 to 2006). However, the rate of capacity utilization (output/capacity available) has fallen slightly over this period of time. Some would say that this measure gives a better picture of productivity than the one we have used in the chapter.

Required Compare the measure of productivity based on capacity utilization with the measure used in the chapter. Which measure do you think is most useful for assessing the state of the manufacturing sector of the economy? Explain briefly.

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.