Question

Liberty Insurance Company processes applications forms. The average output in a week is 600 claims. Currently the staff includes six full-time employees who work 40 hours per week and earn $18.00 per hour, including fringe benefits. Management has invested in computer technology, which has a weekly cost of $1,200. Material and energy are not used in significant amounts. What is the productivity of the application process? (Show all calculations.)

Answer 1

Answer:

Output = 600 claims

Input = (18*6*40) + 1200 = $5520

Cost per application = $9.2 is the cost per claim

Productivity ratio = 600 / 5520 = 0.1086

Explanation:

The productivity of the application process = total weekly cost incurred / weekly application output

Here we have average output of 600 application per week

And cost we have,

Total cost = weekly staff cost + weekly cost on computer technology

Weekly staff cost = 40 hours * 6 staff * $18 per hour rate = $ 4,320

Weekly cost on computer technology = $ 1200

Total cost = $4320 + $ 1200 = $5,520

Now productivity = $ 5,520 / 600 application = $ 9.2

Or we can say that it takes $ 9.2 to process one application

(b) Here we have average output of 650 application per week

And cost we have,

Total cost = weekly staff cost + weekly cost on computer technology

Weekly staff cost = 40 hours * 5 staff * $18 per hour rate = $ 3,600 ( assumed that one staff is reduced as one application evaluator is retiring and not replaced)

weekly cost on computer technology = $ 1800

Total cost = $3,600 + $ 1800 = $5,400

Now productivity = $ 5,400 / 650 application = $ 8.31

Or we can say that it takes $ 8.31 to process one application

Percentage change in productivity ={ ($8.31 – $ 9.2 )/ $ 8.31 } * 100 = - 10.71%

Means that the cost has reduced by 10.71 % by the new process