Labor Costs and Productivity - (A) You are thinking about relocating your washin
ID: 2615884 • Letter: L
Question
Labor Costs and Productivity -
(A) You are thinking about relocating your washing machine manufacturing facility from St. Louis, Missouri to Jakarta, Indonesia. Your U.S. workers earn $20 per hour and their average productivity is 10 washing machines per hour. You estimate that your workers in Indonesia would earn $3.90 per hour and will be able to produce 2 machines per hour. You typically sell about 300,000 machines per year. Your market is entirely in the U.S. and you don't think there will be a substantial market in Indonesia anytime in the foreseeable future. Should you move your facility? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM).
Explanation / Answer
Answer A)
This is based on labor productivity concept ,
Cost of production St. Louis, Missouri = $ 20/10 = $ 2/ machine
Cost of production at new facility Jakarta, Indonesia = $ 3.90/2 = $ 1.95 / machine
Saving per machine at new new place = 2 -1.95 = $ 0.05 /machine
annual demand = 300,000 units
Annual total saving = 300000 * 0.05 =$ 15,000
As there is no market for produced machine in Indonesia , the company has to sell all produced machine in USA market which require a transportation cost , although the transporation cost data is not given in the question but defenetely higher than $ 0.05/machine .
So, we shouldnot move our facility of production in this condition .
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