multifactor productivity. The basic concept is that MFP calculates output over all inputs. In the example given, the inputs are labor and capital. The MFP formula is used to measure the change in productivity that results from specific changes in the production process. In addition, the importance of firms studying productivity changes is explained. Firms need to understand the implications of changing different inputs, in order that they may seek the path of profit maximization. Sensitivity analysis to different changes can help with that process. In addition, the MFP concept is useful for firms seeking to maximize other variables besides profit. The same principles behind MFP can be applied broadly in business to ensure that the best decisions are being made and that productivity is being maximized.
The basic principle is that MFP is based on the outputs per a combination of labor and capital (Jaxworks, 2010). This is in contrast to the standard understanding of productivity that only relates output to labor. In the modern world, labor is just one input, and capital can be a considerable input as well. This is reflected in the increasing use of multifactor productivity in organizations. Therefore:
500 / ($800 + $3,400) = 0.119
In this equation, the $800 is the cost of five workers for sixteen hours multiplied by $10/hr. The $3,400 represents the capital outlay. After the changes have been made, the MFP is:
600 / ($800 + $3,600) = 0.136
This illustrates that there was an increase in multifactor productivity as a result of the changes that were made to the training and equipment. The productivity measure here has changed because the output has changed significantly (+20%) while the inputs have not changed as much (+5.9%). This is a positive outcome for the organization, because it has increased its inputs by a small amount, but increased its outputs by a much more significant amount.
2. It is important to be aware of productivity changes, because those changes represent deviations from the firm’s plans. It is important to be aware of productivity declines, because those will reflect is worsening of the firm’s earnings. Adjustments need to be made in order to correct whatever is causing the decline in productivity. If productivity increases, this may not be as serious, but it provides the opportunity for the firm to improve its efficiencies elsewhere as well, such as scheduling and ordering. In this case, the increase in productivity means that if demand remains the same, the company can decrease the length of its work day, delivering greater cost savings.
Banker, Datar and Kaplan (n.d) noted that accounting professionals often feel that variance analysis is sufficient for measuring and addressing productivity changes. The authors argue that even the best-designed managerial accounting systems do not deliver the same quality of information as an explicit analysis of productivity does. Noting the changes in productivity levels at the firm allows for direct comparison of inputs to outputs, something that most forms of variance analysis have a difficult time achieving. This helps the organization to make the necessary adjustments to improve productivity very quickly, as they immediately know the source of the problem and the best courses of action that can be undertaken to make productivity improvements. Using this equation, a number of different courses of action can be tested for their potential impact on the firm’s multifactor productivity.
3. The changes in the parameters of the productivity calculation are critical to understanding how and where to make adjustments to the company’s operations in order to improve productivity. The basic formula for calculating multifactor production can be subjected to sensitivity analysis, and this will show the impact of changes in the different parameters on the firm’s productivity. For managers, it is also important to understand the impact of all inputs — many MFP calculations go beyond labor and capital to include energy usage and other inputs. Indeed, when economists measure the MFP of a country they typically include a wide range of inputs required to deliver economic output (Lane Report, 2011).
4. Productivity is an essential component to understand the firm’s outputs. To understand this, the basic goal of business must be considered, and that is to maximize profit. The income statement shows that there are a number of components that go into profit, from revenue to cost of goods sold, down to income taxes. What multifactor productivity analysis does is that it focuses the firm on the direct components of production. Decisions about overhead and about revenue are to be analyzed elsewhere — this analysis is about having the most efficient manufacturing process possible.
In any production process, there are tradeoffs that must be made. Firms can invest heavily in machinery that displaces manual labor. Firms can extend work days rather than expanding their plants in order to raise production. The ultimately objective of any of these decisions, however, is to increase profit. While any one decision can be analyzed independent of others, that does not tell the company what the bottom line impact of the decision will be. Increasing the length of shifts will produce more output, and the impact on the cost of labor is easy to see, but analyzed on its own, the company may realize that such a tactic reduces its productivity. Firms maximize their profit at the point where they maximize productivity. For firms operating in any market structure, the marginal cost of producing an extra unit must be less than to the marginal revenue earned from that unit in order to earn additional profit (CliffNotes, 2011)
The multifactor productivity calculation allows firms to be able to analyze the change in productivity that changes in the production process will deliver. This in turn helps the firm to understand what its marginal cost of producing those additional units is, and whether that is more than or less than the marginal revenue earned from that production. As a result, the MFP calculation contributes to better decision-making at the firm level.
It also helps the firm to improve productivity. The MFP calculation demands that the firm understand its inputs, not just its outputs. This can help with many of the firm’s operational goals. Many firms have objectives that go beyond profit maximization — the MFP calculation allows the impact of any change in the production process to be analyzed in the context of not only the outputs but all other inputs as well. Thus, the firm has the knowledge required to make good decisions that will improve the productivity at all levels of the organization.
Banker, R., Datar, S. & Kaplan, R. (no date) Productivity measurement and management accounting. Journal of Accounting, Auditing and Finance. Retrieved November 6, 2011 from http://astro.temple.edu/~banker/Accounting/32_Productivity%20Measurement%20and%20Management%20Accounting.pdf
CliffNotes. (2011). Profit maximization. Cliff Notes. Retrieved November 6, 2011 from http://www.cliffsnotes.com/study_guide/Profit-Maximization.topicArticleId-9789,articleId-9769.html
Jaxworks. (2010). Multifactor productivity. Jaxworks.com. Retrieved November 6, 2011 from http://www.jaxworks.com/calc5.htm
Lane Report. (2011). Multifactor productivity rose in 14% of detailed manufacturing industries studied in 2009. The Lane Report. Retrieved November 6, 2011 from http://www.lanereport.com/articles/fastlane_article.cfm?id=multifactor_productivity_rose_in_14_of_detailed_manufacturing_industries_studied_in_2009
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
There is a very low likelihood that you won’t like the paper.
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more