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Q2. (5 Pts.) Performance Sails’ accountant (from Q1) suggests that in addition to the variable cost (labor cost) also the fixed cost (rent) should be factored into the productivity calculations. The cost to rent store space and the hourly wage rates are given below. Sausalito Alameda Embarcadero Oakland Monthly Sales volume $40,000 $12,000 $60,000 $25,000 Labor hours/month 250 60 500 200 Labor cost/hr $6.75 $6.50 $6.00 $5.50 Rent (per month) $1,900 $1,500 $2,150 $900 Productivity a. Which store is most productive? b. Performance Sails is not sure it can keep all four stores open. Based on productivity, which store would you close? What other factors should be considered? c. What would Alameda’s multi-factor productivity be if the monthly sales could be increased to $24,000 (please make sure to identify which costs are variable and fixed and adjust the variable cost proportional to the sales increase)?

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jepessoa

Answer:

a. Which store is most productive?

  • Oakland

b. Performance Sails is not sure it can keep all four stores open. Based on productivity, which store would you close?

  • Alameda

What other factors should be considered?

  • Total volume sales could also be a factor to consider, except that in this case, Alameda store sells the least amount per month.

c. What would Alameda’s multi-factor productivity be if the monthly sales could be increased to $24,000 (please make sure to identify which costs are variable and fixed and adjust the variable cost proportional to the sales increase)?

  • total costs = (120 x $6.50) + $1,500 = $2,280
  • multi-factor productivity = $24,000 / $2,280 = 10.53 (still the lowest, the problem is that the rent is too high, labor productivity is not a problem)

Explanation:

                            Sausalito      Alameda      Embarcadero    Oakland

Monthly Sales      $40,000      $12,000          $60,000        $25,000

Labor hours             250               60                 500                200

Labor cost/hr         $6.75          $6.50             $6.00             $5.50

Total labor          $1,687.50       $390             $3,000           $1,100

Rent (month)        $1,900         $1,500            $2,150             $900

Total cost           $3,587.50     $1,890            $5,150            $2,000

Multi-factor             11.15              6.35               11.65               12.5

productivity

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