The manager of Lawson Company was reviewing two competing proposals for the Machining Department. The fiscal year was coming to a close, and the manager wanted to make a decision concerning the proposed process changes so that they could be used, if beneficial, during the coming year. The process changes would affect the department’s input usage. For the year just ended, the Accounting Department provided the following information about the inputs used to pro- duce 250,000 units of output:

                              Quantity           Unit Prices  

 

Materials	450,000 lbs.	$ 8
Labor	200,000 hrs.	10
Energy	100,000 kwhs.	2

Each proposal offers a process design different from the one currently used. Nei- ther proposal would cost anything to implement. Both proposals project input usage for producing 300,000 units (the expected output for the coming year).

                             Proposal A                 Proposal B     

 

Materials	450,000 lbs.	500,000 lbs.
Labor	200,000 hrs.	150,000 hrs.
Energy	100,000 kwhs.	100,000 kwhs.

Input prices are expected to remain the same for the coming year.

 

 

 

 

 

 

 

Required

1.    Compute the partial operational productivity measures for the most recently completed year and each proposal. Does either proposal improve technical effi- ciency? Explain. Can you make a recommendation about either proposal using only the physical measures?

2.    Calculate the profit-linked productivity measure for each proposal. Which pro- posal offers the best outcome for the company? How does this relate to the con- cept of price efficiency? Explain.