Managing Productivity &

Marketing Effectiveness
Chapter 24
Managing Productivity
 Sustaining profitability &
maintaining/improving market share
requires effective marketing activities.
 Having ability to produce more with less
resources is the story behind progress &
success.
 Productivity has become the wealth not
only of the company, but of the country.
 Benefits of higher productivity to business
are: a) competitive advantage b) higher
than average returns c) attainment of long
term success.
Measuring Productivity
Total Productivity is the measure that include all the inputs used in the
production. Below is the summary of productivity measure:
 Measuring Productivity

Partial productivity relates to one or part of the

input factors to the output. Basic formula is as
follows:

Partial Productivity

This Photo by Unknown Author is licensed under CC BY-SA-NC

Measuring Productivity (By Part)
A measure of productivity can either be operational or financial
productivity measure:
Illustration 1
 Illustration 2 cont…

We can note the following on this illustration:

 Operating income has increase only to 17% [(2200-1880) ÷ 1880], even though
sales has increase favorably by 20% (1600 ÷ 8000) or [(4,800-4000) ÷4000)] even
with the fixed cost remains at P600K.
 The variable cost has increased by 32% [(1600+400)-(1200+320) ÷ 1,520]
 Number of factors should have contributed to the increase in direct materials
& direct labor costs as well as increase in the # of units manufactured & sold.
Further there are changes in proportion of the inputs used in production, & unit
cost of resources (mat’l & labor).
 The company should identify factors that caused the change in order for it to
implement some cost saving measures to increase operating income, thus it
need to know changes in production of individual production resource. Partial
productivity measure provide such.
By-Part Financial Productivity Analysis

Material Labor
 2019 Productivity 0.0067 unit/Peso spent  2019 Productivity 0.025 unit/labor hr
vs vs
 2020 Productivity 0.0060 unit/ Peso spent  2020 Productivity 0.024 unit/ labor hr

This financial productivity indicates the number The direct labor partial financial productivity is
of units of output for every peso spent. In 2019
direct material financial productiveness is
0.025 in 2019 and it reduced to 0.0024, a 4%
0.0067 while in 2020 its only 0.0060. This decrease [(0.025-0.024) ÷ 0.025]. This contradicts
indicates decrease in productivity in 2020 by the direct labor partial operation productivity
10% [(0.0067-0.0060) ÷ 0.0067] reported earlier at 20% improvement.
Illustration 2 cont…
Figure 24.2 provides by-Part Operation & financial productivity analysis of Press Tool:
 By-Part Operation Productivity Analysis

Material Labor
 2019 Productivity 0.16 unit/lb of mat’l  2019 Productivity 1 unit/labor hr
vs vs
 2020 Productivity 0.15 unit/lb of mat’l  2020 Productivity 1.20 unit/ labor hr

For 2020, productivity per pound of material is For 2020 productivity per hr the company have
lower by .01 unit/lb, a decrease of 6.25% produced 1.20 unit/hr as against 1 unit/hr in 2019.
(.01÷.16). In 2020, the company required only With total hours available of 8,000 the company
32,000 lbs of mat’l (4,800 ÷ 0.15), which should manage to produce 9,600 unit as compare with 8,000
only been 30,000 lbs (4,800/.16), an increase
2,000 lbs which is unfavorable.
units only in 2019.
By-Part Productivity measure
Advantage: Limitation:
1. Allows analysis on a particular 1. Being particular in its analysis, it ignores any
production input. effect that changes in other manufacturing factors
2. Easy to interpret by all and easy to
have on productivity.
assess productivity performance. 2. It ignores any effect that changes in other
3. The standard for performance are production factors have on productivity.
often short-term for operational 3. It ignores the effect that changes in the firm’s
control, i.e. productivity ratios of operating characteristics have on productivity of
prior batches of goods & the input.
productivity trends within the year
can therefore be tracked. 4. An improved partial productivity does not imply
that the firm or division operates efficiently
Measuring Productivity cont…

Total productivity shows the relationship between

output & the total cost of all resources. It is a
financial measure & can either be number of units or
sale value of output obtained., thus formula is as
follows:

Total Productivity

This Photo by Unknown Author is licensed under CC BY-SA-NC

Illustration 2 cont…
Below provides Total productivity analysis of Press Tool for 2019 & 2020:

As noted on above total productivity in units have decreased by 8.8% [(5.263%- 4.8%]÷5.263%] and in sales pesos have decreased by 0.263 unit (2.6316-2.400). Both unfavorable decrease.

Total Productivity in units Total Productivity in peso sales

Total Productivity measure
Advantage: Limitation:
Total Productivity 1. Total productivity is a financial measure & executive at the
measure the
combined produc –
operational level may have difficulty linking productivity
tivity of all ope- measures to their day to day operation.
rating factors. It
decreases the 2. The basis for assessing changes in productivity could vary
possibility of over time, that year, yearly measures use different years as
manipulating factors the base.
to improve
productivity measure 3. It can ignore the effects of changes in demand for the
of other product, changes in selling prices of the goods and services
manufacturing
factors. & special purchasing & selling arrangements on productivity.
Managing Marketing effectiveness
>>No entity can gain success without effective marketing activities that will enable to accomplished the following: a) Earned projected operating income b) Attained desired & budgeted mkt price c) adapt to mkt change.
>>Factors that affect marketing effectiveness include selling price, sales quantity, product mix, market size & market share. Variances in any of these factor affects company’s operating results & these can prevent entity in achieving its short term performance objectives & strategic goals. The Components of sales variances follows:
Summary of Variances (Sales)
This is the difference bet actual This is the difference bet actual
peso receive/unit VS budgeted units sold VS budgeted unit. It
sales/unit per master budget. It measures the effect on CM &
measures the impact of deviation of operating income when quantity sold
actual selling price from budgeted for one or more products differs
selling price on CM & income. from quantity per master budget.
Summary of sales variances
This is the difference between the actual This measures the effect on CM &
VS budgeted sales mix, the actual total operating income due to deviation of the
unit sold and the budgeted CM/unit of actual total sales units from budgeted
product. It measures the effect on CM & total units.
Operating income due to deviation of
actual sales mix from budgeted mix.
Illustration 2 Prob
Illus 2 Solution_Total Variance computation

    at Budget   at Actual
Flavor Qty SP VC CM Profit Qty SP VC CM Profit
Vanilla 250,000 12 5 7 1,750,000 180,000 10 5 6 990,000
Chocolate 300,000 15 6 9 2,700,000 270,000 14 5 9 2,295,000
Strawbery 200,000 18 7 11 2,200,000 330,000 20 8 13 4,125,000

Mango 50,000 25 10 15 …..750,000 180,000 30 12 18 3,240,000

Total         7,400,000         10,650,000
Less: Budgeted                   7,400,000
Total Variance                   3,250,000
 Illus 2 Solution_ Variance breakdown
(630k+2,620k=3,250k)

Sales Price Variance Sales Volume Variance

C
Actual Budget
Flavor CM CM (a-b=c Actual Var (c x d) Actual Budget ( a-b CM
Flavor (a) (b) ) (d) Var (c x d)
Vanilla 5.50 7 -1.50 180,000 -270,000
Vanilla 180,000 250,000 -70,000 7 - 490,000
Chocolate 8.50 9 -0.50 270,000 -135,000
Chocolate 270,000 300,000 -30,000 9 - 270,000
Strawbery 12.50 11 1.50 330,000 ……..495,000 … …
Strawbery 330,000 200,000 130,000 11 1,430,000
Mango 18.00 15 3.00 180,000 ……..540,000 …
Total         630,000 Mango 180,000 50,000 130,000 15 ….1,950,000
Total 960,000 800,000     2,620,000
Illus 2 Solution_ Sales Mix
Illus 2 Solution_ Sales volume variance breakdown
(1,140k+1,480k=2,620k)

Sales Mix variance Sales Qty variance

Extract from Chapter 20 (page 875-876)

CM/Profit variance
Qty variance        
Product Actual_a Budget_b (a-b=c BCM Var (c x d) Actual

Zim 4,800 5,000 -200 6.00 - 1,200 5.60

Zoom 5,300 5,000 300 4.50 1,350 4.35

Total (favorable)         150 SAME

               
CM variance              

not covered by book

To analyze further what contributed to the variance of P150, we can further calculate the variance due to sales volume/mix as
follows:

Sales Volume variance (CM level) = (10100-10000)*(((5000*6)+(5000*4.5))/10000)

525 Covered
Sales Mix variance (CM level) = ((((5000*6)+(5000*4.5))/10000)-(((4800*6)+(5300*4.5))/10100))*10100
-375 Covered
Net 150 SAME
 Summary of Variances (Market effectiveness)
This measures the effect of changes in This variance compare the firm’s
the total market size on the firm’s CM actual market share to its budgeted
and Operating income. As the size of market share & measures the effect
the total market for the firm’s product of change in the firm’s market share
changes, the total sales of the firm are on its total CM and operating income.
likely to change with it.
Illustration 3
Illustration 3 sol

Note: The 85K is

unfavorable not
favorable