Question

A property title search firm is contemplating using online software to increase its search productivity. Currently an average of 40 minutes is needed to do a title search. The researcher cost is $2 per minute. Clients are charged a fee of $400. Company A’s software would reduce the average search time by 10 minutes, at a cost of $3.50 per search. Company B’s software would reduce the average search time by 12 minutes at a cost of $3.60 per search. Which option would have the higher productivity in terms of revenue per dollar of input?

Answer 1

Answer: Company B

Explanation:

Current company:

Average time = 40 minutes

Cost = Average time x researcher cost

         = 40 x $2

         = $80

$Productivity\ per\ dollar\ inpt= \frac{Total\ fee\ charged}{cost}$

$Productivity\ per\ dollar\ inpt= \frac{400}{80}$

                                                       = $5

Company A:-

Company A will reduce the current average time by 10 minutes

Average time = 40 - 10

                       = 30 minutes

Cost per search = $3.50

Cost = Average time x Researcher cost + cost per search

       = 30 x $2 + $3.50

       = $63.50

$Productivity\ per\ dollar\ inpt= \frac{Total\ fee\ charged}{cost}$

$Productivity\ per\ dollar\ inpt= \frac{400}{63.50}$

                                                       = $6.29

Company B:-

Company B will reduce the current average time by 12 minutes

Average time = 40 - 12

                       = 28 minutes

Cost per search = $3.60

Cost = Average time x Researcher cost + cost per search

        = 28 x $2 + $3.60

        = $59.60

$Productivity\ per\ dollar\ inpt= \frac{Total\ fee\ charged}{cost}$

$Productivity\ per\ dollar\ inpt= \frac{400}{59.60}$

                                                       = $6.71

The revenue per dollar of input of:

Current Company = $5,

Company A = $6.29 and  

Company B = $6.71.

The highest productivity in terms of revenue per dollar of input is provided by Company B.