Learning Objectives:

1. Describe productivity;
2. Compute partial productivity and total
productivity; and
3. Define market effectiveness.

Managing Productivity and Marketing Effectiveness

MAC 406: PERFORMANCE MANAGEMENT SYSTEM
BS Management Accounting

Managing Productivity Measuring Productivity

Improvements in productivity is achieved when fewer
workers, materials, machines or other resources are used to A productivity measure that includes all input
manufacture and sell the same or better products. Among resources used in production is a total productivity.
the benefits that higher productivity brings about to
business firms are:
(1)Competitive advantages
(2)Higher-than-average returns, earnings and
(3)Attainment of long-term success
Productivity is the ratio of output to input.

Measuring Productivity Measuring Productivity

▪ For example, the number of tables
manufactured per peso of manufacturing costs
is a total productivity measure because the
denominator includes all manufacturing costs
incurred to make the table. ▪ A company that spends five (5) days to manufacture
200 units has a productivity of 40 units per day.
▪ To improve productivity, firms need to know the
productivity levels of their operations.
 Measuring Productivity Measuring Productivity

▪ A productivity measure is often compared to ▪ A measure of productivity can be either an

the performance of a prior period, another firm, operational or financial productivity measure:
the industry standard or a benchmark in
assessing a firm’s productivity.

Partial Productivity Partial Productivity

A partial productivity measures the relationship ▪ The numerator is the number of units or value
between the output and one or part of the required of the goods and services produced.
input resources used in producing the output. The ▪ The denominator is the number or cost of a
higher the ratio is, the better. manufacturing factor such as direct materials,
direct labor-hours, or selected input resources.

To illustrate, selected production data of Press Tool Company are made available
below. The manufacturing costs include total fixed factory overhead and other
Partial Productivity operating expenses of P300,000 per year and variable manufacturing costs
consisting of metal alloy (direct materials and direct labor-hours).

▪ A partial operational productivity is the required

physical amount of an input resource to
produce one unit output.
▪ A partial financial productivity of an input
resource is the number of units or the value of
output manufactured for each peso spent on the
input resource.
 Partial Operational and Advantages and Limitations of Partial Productivity
Analysis
Financial Productivity Advantages

(1) Focuses on the use of a particular

Limitations

(1)It measures only the relationship between an input

input resource and the output. Ignores any effect that
changes in other manufacturing factors have on the
productivity
(2) Easy to interpret and easy to use for (2) Ignores any effect that changes in other production
assessing productivity of operating factors have on the productivity
personnel

(3) For operational control, productivity (3) Ignores the effects that changes in the firm’s
trends within the year can be easily operating characteristics have on the productivity of the
tracked input resource

(4) An improved partial productivity does not imply that

the firm or division operates efficiently. No efficiency
standard is involved.

To illustrate, selected production data of Press Tool Company are made available
below. The manufacturing costs include total fixed factory overhead and other
Total Productivity operating expenses of P300,000 per year and variable manufacturing costs
consisting of metal alloy (direct materials and direct labor-hours).

Total productivity shows the relationship between

the output and the total cost of all input resources
used to produce the output.

Benefits and Limitations of Total

Total Productivity Productivity Measures
Benefits
Decreases the possibility of manipulating some of the manufacturing
factors to improve the productivity measure of other manufacturing
factors
Limitations
(1)Executives at the operational level may have difficulty linking
financial productivity measures to their day-to-day operations
(2)Basis for assessing changes in productivity could vary over
time, that year, yearly measures use different years as the base
(3)Can ignore the effects of changes in demand for the product,
changes in selling prices of the goods and services and special
purchasing and selling arrangements on productivity
 Managing Marketing
Marketing Effectiveness
Effectiveness
▪ Sustaining profitability and maintaining or improving
market share requires effective marketing activities. No entity can gain success without effective
Effectiveness in marketing however demands proper marketing activities that will enable it to
consideration of factors such as selling price, sales accomplish the following:
volume, market price, market share and productivity. (a)earn the projected operating income
(b)attain the desired and budgeted market share
(c)adapt to market change

Managing Marketing Managing Marketing

Effectiveness Effectiveness
▪ Many factors affecting marketing effectiveness. ▪ Variances in any of these factors affect
These include changes in selling prices, sales operating results and can prevent a firm from
quantity, product mix, market size and market achieving its short-term performance objectives
share. and strategic goals. The difference between the
. actual sales revenues of a period and the sales
revenue in the master budget is the sales
variance of the period.

Summary of Analysis to Assess Managing Marketing

Marketing Effectiveness Effectiveness
▪ SALES VOLUME VARIANCE ▪ SALES MIX VARIANCE

A sales volume (activity) variance is the difference between the budgeted The sales mix variance of the product is the product of the difference
contribution margin for the actual total units sold (flexible budget between the actual and budgeted sales mix, the actual total units of all
contribution margin) and the budgeted contribution margin for the budgeted products sold, and the budgeted contribution margin per unit of the product.
units (master budget contribution margin). This variance measures the effect A product sales mix variance measures the effect on contribution margin
of the contribution margin and operating income when the quantity sold for and operating income due to the deviation of the actual sales mix from the
one or more products differs from the quantity in the master budget for the budgeted sales mix.
period.
 Managing Marketing Managing Marketing
Effectiveness Effectiveness
▪ SALES QUANTITY VARIANCE ▪ MARKET SIZE VARIANCE

A sales quantity variance measures the effect on • Market size variance measures the effect of changes in the
total market –size on the firm’s total contribution margin and
the contribution margin and operating income due operating income.
to the deviation of the actual total sales units from • As the size of the total market for a firm’s product changes,
the budgeted total units. the total sales of the firm are likely to change with it.

Managing Marketing Managing Marketing

Effectiveness Effectiveness
▪ MARKET SIZE VARIANCE ▪ MARKET SHARE VARIANCE

▪ When the total market size for a firm product

expands, the total sales of the firm likely would Market share variance compares the firm’s actual
increase. market share to its budgeted market share and
measures the effect of changes in the firm’s market
share on its to contribution margin and operating
income.

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