(continuation of Exercise 13-37). Refer to the data for Exercise 13-37. Assume the fabric costs $4 per metre in 2016 and $4.10 per metre in 2015.
1. Compute Guble Company’s total factor productivity (TFP) for 2016.
2. Compare TFP for 2016 with a benchmark TFP for 2015 inputs based on 2016 output.
3. What additional information does TFP provide that partial productivity measures do not?
Guble Company manufactures wallets from fabric. In 2015, Guble made 2,500,000 wallets using 1,875,000 metres of fabric. In 2016, Guble plans to make 2,650,000 wallets and wants to make fabric use more efficient. At the same time, Guble wants to reduce capacity; capacity in 2015 was 3,000,000 wallets at a total cost of $9,000,000. Guble wants to reduce capacity to 2,800,000 wallets, at a total cost of $8,680,000 in 2016.
Suppose that in 2016 Guble makes 2,650,000 wallets, uses 1,669,500 metres of fabric, and reduces capacity to 2,800,000 units and costs to $8,680,000.
1. Calculate the partial-productivity ratios for materials and conversion (capacity costs) for 2016, and compare them to a benchmark for 2015 calculated based on 2016 output.
2. How can Guble Company use the information from the partial-productivity calculations?
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