Enter the units of output, units of labor, units of capital, units of material, and any extra costs into the calculator to determine the multifactor productivity.
Multifactor Productivity Formula
The following formula is used to calculate the multifactor productivity of a manufacturing or business segment.
MP = O / (L + C + M)
- Where P is the multifactor productivity units/$
- O is the tota units of output
- L is the labor costs associated with those units
- C is the capital costs associated with those units
- M is the material costs associated with those unit
Multifactor Productivity Definition
Multifactor productivity is a rate of production value per unit of combined costs for a product. Simple production rates usually account for the total number of units produced per dollar of labor spent, while the multifactor productivity model takes into account all factors that go into the cost of the product such as capital investment and material costs.
How to calculate multifactor productivity?
First, determine the total units of output during the time of production being analyzed. For this example, we will use 5,000 units produced in the previous month which accounted for $25,000.00 worth of value.
Next, determine the total amount of money spent on labor during the same time period that went directly into the production of the units. For this problem, the labor spent was $1,000.00.
Next, determine the capital costs tied to the production. Over that month it’s found that $3,000.00 of extra capital was invested in new equipment for production.
Next, determine the material costs that went into the production. In this example, the material costs were $1,000.00.
Finally, calculate the multi-factor productivity using the formula.
MP = $25,000/ ($1,000 + $3,000 + $1,000)