Posted: July 12th, 2016

Did the managers of the firm perform better this year compared with last year?

How does that change the contribution towards profitability?

Economists and managers have long recognized the importance of productivity in determining an organization’s success. Productivity is the relation between the firm’s output of goods and services and the inputs necessary to produce that output. If the firm is able to produce more output with the same inputs, we say it has improved its productivity.


a. Critically analyze the productivity calculations in Table 2. Did the managers of the firm perform better this year compared with last year, as the productivity measures indicate?

b. Discuss some plausible reasons why comprehensive productivity systems have not been widely adopted by organizations.

c. Consider the situation of Burk Wheels. Burke Wheels manufactures aluminum automobile wheels (onto which rubber tires are mounted). The owner Gerry Burk, is worried about increased competition from foreign countries (with lower labor costs) and is seeking to increase the productivity of her workers. She decides to implement bonus system for direct line supervisors and department managers to reward them for improving labor productivity. In particular, supervisors will receive bonuses if they improve their department’s labor productivity, defined as Output / Labor hours. The casting department is the primary production process whereby molten aluminum is poured into molds, cooled, and then removed to form the wheels.

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