Arjang Pottery Inc.
Arjang Pottery Inc. is a small manufacturing company that produces custom made
decorative clay and porcelain products. Sara Tabib, the production manager of the
figurine department, is preparing a semi-annual productivity report and wondering
whether her recommendation to the company to add a new air-paste injector has
helped with productivity of her department. Looking at the production data of the first
half of 2019 and comparing it with that of 2018 she found the following:
Production (sets)
Raw material used (mixed clay bags)
Labor hours
Capital cost applied to production ($)
2019
2,250
350
11,000
$187,500
2020
3,000
450
14,000
$310,000
Sara is also aware of the 5% inflation in 2020 compared to 2019 leading to the following
changes:
Sara is primarily concerned about the accounting impact of the change in capital cost
on her productivity even though her boss has suggested that there was nothing that
could be done about that. The change resulted from acquiring the new air-paste injector
with a life cycle of 10 years and zero salvage value.
Although she sees a growth in production output, Sara wonders if the
productivity of her department had increased at all. Calling your group into her office
she conveys the above information to you and asks you to analyze her productivity.
Your group is to required to:
1. Prepare the productivity of all factors. She expects some analysis of single factor
productivity for all factors, as well as a multifactor analysis for both years with the
change in productivity (+ or - amount).
2. Considering Sara’s concern about her machinery cost increase, what do you tell her
are the implications of this change factoring in the producer price index?
3. If a 3% productivity improvement is expected in this industry has Sara met this
target?
4. What can Sara report to show she has not made a bad recommendation to the
company to add the new injector to her operation?
Adopted from original case proposed by Professor Hank Maddux, Sam Houston State University