Chapter 24
Managing Productivity
Sustaining profitability and maintaining or improving market share requires effective marketing
activities. Effectiveness in marketing however demands proper consideration of factors such as
selling price, sales volume, and market price, market share and productivity.
Organizations strive to attain being able to produce more with less resources.
Managing Productivity
Improvements in productivity is achieved when fewer workers, materials, machines or other
resources are used to manufacture and sell the same or better products. Among the benefits
that higher productivity brings about to business firms are
(1) competitive advantages
(2) higher than advantage returns, earnings and
(3) attainment of long-term success.
Measuring Productivity
Productivity is an average measure of the efficiency of production. It can be expressed as the
ratio of output to inputs used in the production process, i.e. output per unit of input. When all
outputs and inputs are included in the productivity measure it is called total productivity.
Partial productivity
Productivity Partial operational productivity
Partial financial productivity
Total productivity (financial productivity)
Measuring Productivity
Productivity is the ratio of output to input.
Productivity = Output/Input
A measure of productivity can be either an operational of financial productivity measure :
Operational Productivity = output units / Input units
Financial Productivity = ₱ output / ₱ input
Partial productivity relates one or pat of the input factors to the output.
Basic formula is: Number of units or value of output manufactured
Number of units or cost of a single or part of the input resources
Measuring Productivity
Direct materials yield = output / input of materials
Workforce productivity:
Output per labor-hour = output / input of labor hours
Output per person employed = output / no. of labor forces
Process (activity) productivity = output/ machine hour used
Partial Productivity
A partial productivity measures the relationships between the output and one or part of the
required input resources used in producing the output. The higher ratio is better.
Partial productivity = no. of units or value or output manufactured
no. of units or cost of a single or part of the input resources
Partial Productivity
Advantages:
1. It allows managers to focus on the use of a particular input.
2. It is easily interpreted by all within the organizations and are easy to use for assessing
productivity of performance of operating personnel.
3. for operational control, the standard for performance are very often short-term, say
productivity ratios of prior batches of goods, and productivity trends within the year can
therefore e tracked.
Total Productivity
Total productivity shows the relationship between the output and the total cost of all input
resources used to produce the output.
Total productivity = units or sales value of output
total cost of all input resources
Total productivity is a financial productivity measure. It can be either the number of units r the
sale value of the output obtained.
Managing Marketing Effectiveness
A firm is effective in marketing when it:
• Earns the budgeted operating income,
• Attains budgeted market share, and
• Adapts to changes in the market.
Selling price and Sales Volume Variance
Selling price variance (SPV) - The variance resulting from changes in the volume of sales.
Sales Volume Variance (SVV) - The variance resulting from changes in the price of goods sold.
Variances that are often used to evaluate marketing performance
Sales Mix and Quantity Variance
Market Share Variance
Market Size Variance
Sample Problems:
Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following
data: The yield on the company’s outstanding bonds is 7.75%; its tax rate is 40%; the next expected
dividend is P0.65 a share; the dividend is expected to grow at a constant rate of 6.00% a year; the price
of the stock is P15.00 per share; the flotation cost for selling new shares is F = 10%; and the target
capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue
new stock to finance its capital budget?
Espinosa Corporation had P220,000 in invested assets, sales of P242,000, income from operations
amounting to P48,400, and a desired minimum rate of return of 3%. The rate of return on investment
for Espinosa is?
Espinosa Corporation had P1,100,000 in invested assets, sales of P1,210,000, income from operations
amounting to P242,000, and a desired minimum rate of return of 15%.
1. The profit margin for Espinosa is?
2. The investment turnover for Espinosa is?
3. The residual income for Espinosa is?
