Measuring Productivity 211inefficiencies in the use of the paper: The number of pages actually used per
ream was equal to budget.
Labor Indices
Jane then performed an identical analysis for labor costs:
In words, the labor portion of the variable cost remained the same from f lexi-
ble to actual because the rise of 20% in the hourly wage was exactly offset by
the 16.67% decrease in the time to produce a ream of letterhead.
“I’ve just realized that what we have here,” said Tom, “is a great way to
measure increases in productivity. Dana keeps on talking about how our pro-
ductivity is falling. One way to counteract that is to check how efficiently
people are working. Before one measures physical productivity, though, one
has to eliminate the wage effect, which is just what you have shown me how
to do here.”
Variable Overhead Indices
“I think I can now do the variable overhead analysis myself,” said Tom. “I just
take the three components of the actual cost and divide that by the three com-
ponents of the f lexible budget. Check me if you will.”
Variable OH Index Actual Costs
Flexible Budget$0. .15 )
$1.. 0 )===××
××=××=××
=$,
$,
(,
(,
$.
$..
.,
,
...
.1 500
1 800
1 00 0 2 1 200
5 00 0 1 1 200
10 00
15 000 125
0101 200
1 200
0 667 1 25 1 00
0 833Labor Index Actual Costs
Flexible Budget$. per hour. 5 hours per ream reams)
$. per hour. 0 hours per ream reams)=== ××
××=××=× ×
=$,
$,
(,
(,
$.
$..
.,
,
...
.1 800
1 800
6 00 0 2 1 200
5 00 0 3 1 200
600
500025
0301 200
1 200
120 0833 100
100