Zychol Chemical Corporation

Zychol productivity report is based on productivity individual and multifactor analysis for years 2006
and 2007 .
Analysis is dependent on the following data given as information
Data 2006 year 2007 year
Production units 4500 6000
Raw material used (barrel of petroleum) 700 900
Labor hours 22000 28000
Capital cost applied to department $ $375000 $620000

Productivity measurement is essential part of this analysis , we measure the productivity as following
Productivity = output / input this is the general equation used as but as variation of data is present
so we will be modifying the equation as data demands .
1. Productivity = units produced / raw material used
2. Productivity = units produced / labor hours
3. Productivity = units produced / capital cost
4. Productivity = units produced / (raw material cost + labor cost + capital cost )
Single factor analysis
Productivity of units per barrel is calculated as following by equation 1
For 2006 For 2007
4500units/700 barrel
6.4286 units/barrel
6000units/900 barrel
6.6667 units/barrel

Productivity of units per labor hour is calculated as following by equation 2
For 2006 For 2007
4500 units/ 22000 labor hour
0.2045 units/hour
6000units/28000 labor hours
0.2143 units/hour

Productivity of units per capital invested is calculated as following by equation 3
For 2006 For 2007
4500 units/375000$
0.012 units/capital cost
6000units/620000$
0.0097 units/capital cost




Change in productivity results by single factor analysis
Productivity 2006 2007 % change
Raw material 6.4286 6.6667 3.70
Labor hours 0.2045 0.2143 4.76
Capital invested 0.012 0.0097 -19.35

Both labor and material productivity increased, but capital equipment productivity did not.
The net result is a large negative change in productivity by single factor analysis.


Multifactor analysis
Multifactor analysis requires total cost of raw materials and cost of labor .The cost per barrel
changed from $320 to $360. So the total cost for materials for 2006 and 2007 is as following
Cost for 2006 Cost for 2007
$320*700
$224000
$360*900
$324000

The cost of labor is stated as increasing from $13 per hour to $14 per hour. The total labor cost for
2006 and 2007 is as following
Cost for 2006 Cost for 2007
$13*22000 hours
$286000
$14*28000
$392000

Next the total costs must be added up and divided into the units produced to get the multifactor
productivity.
Total cost for 2006 Total cost for 2007
Material cost $224000
Labor cost $286000
Capital cost $375000
Total cost $885000

Material cost $324000
Labor cost $392000
Capital cost $620000
Total cost $1336000

The multifactor productivity for the years is as following ( using equation 4)
Years 2006 2007
Productivity = units / total cost 4500units/885000$ 6000units/1336000$
Units cost per dollar 0.00508units/dollar 0.00449units/dollar


Change in productivity by multifactor analysis
Change={ (new level old level) / old level}x100 is the formula applied to see the change in
productivity level .Using the multifactor productivity we see that the departments productivity has
dropped - 11.76% (0.00449-0.00508/.00508 = - 11.76%).
Conclusion
The department did not meet its productivity goal of a 5% increase because both labor and material
productivity increased, but capital equipment productivity did not (single factor analysis). The net
result is a large negative change in productivity(multifactor analysis) . If this is a one-time change in
the accounting procedures, this negative change should also be a one-time anomaly. The effect of
accounting procedures is often beyond the control of managers. For example, perhaps the capital
allocation is based on an accelerated allocation of depreciation of newly installed technology. This
accounting practice will seriously impact near-term productivity and then later years productivity
figures will benefit from the reduced depreciation flows. This highlights the difficulty in accounting
for costs in an effective managerial manner. Decisions and evaluation of operating results should be
based on sound managerial accounting practices and not necessarily generally accepted financial
accounting principles.