Tried and True’s accountant suggests that monthly rent and hourly wage rate also be factored into the productivity calculations. Annandale pays the highest average wage at $10 an hour. Blacksburg pays $7.25 an hour, Charlottesville $8, and Danville $7.50. The cost to rent store space is $2800 a month in Annandale, $1200 a month in Blacksburg, $2000 a month in Charlottesville, and $800 a month in Danville. a. Which store is most productive?
b. Tried and True is not sure it can keep all four stores open. Based on multifactor productivity, which store would you close? What other factors should be considered?

a. Blacksburg

b. Blacksburg

Explanation:

a. Productivity is measured by how much output is derived per input.

= Output/Input

= Sales Volume/Labor Hours

Annandele = 40,000/250

= $160 per hour

Blacksburg = 12,000/60

= $200 per hour

Charlottesville = 60,000/500

= $120

Danville = 25,000/250

= $100

Blacksburg is most productive at $200 per labor hour.

b. Multifactor productivity would incorporate the other costs such as labor rate and rent.

= Sales volume / ( Rent + Labor cost)

Annandale = 4,0000/ (2,800 + 250 * 10)

= $7.5

Blacksburg = 12,000 / (1,200 + 60 * 7.25)

= $7

Charlottesville = 60,000/ ( 2,000 + 500 * 8)

= $10

Danville = 25,000 / ( 800 + 200 * 7.50)

= $10.86

Blacksberg is least productive using Multifactor so should be closed down.