A Company that makes shopping carts for supermarkets and other stores recently p

Question

A Company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labor content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used 4 workers, who produced an average of 82 carts per hour. Workers receive $11 per hour, and machine coast was $52 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $16 per hour while output increased by four carts per hour. a) Compute the multifactor productivity (MFP) (labor plus equipment) under the After buying the new equipment. The MFP (carts/S)- (round to 4 decimal places). b) Compute the % growth in productivity between the Prior to and after buying the new equipment. The growth in productivity % (round to 2 decimal places)

Explanation / Answer

Given values:

Before new equipment purchase:

Number of workers = 4

Output produced = 82 carts per hour

Labor wage = $11 per hour

Machine cost = $52 per hour

After new equipment purchase:

Number of workers = 3

Output produced = 86 carts per hour

Labor wage = $11 per hour

Machine cost = $68 per hour

Solution:

(a) Multi-factor productivity (MFP) after buying the new equipment is calculated as;

MFP = Number of carts produced / (Total labor cost + Total equipment cost)

MFP = 86 / [($11 x 3) + $68]

MFP = 86 / 101

MFP after buying the new equipment = 0.8515 carts/$

(b) The % growth in productivity between the prior to and after buying the new equipment is calculated as;

Growth in productivity = [(Productivity before purchase - Productivity after purchase)/Productivity before purchase] x 100

Multi-factor productivity (MFP) before buying the new equipment is calculated as;

MFP = Number of carts produced / (Total labor cost + Total equipment cost)

MFP = 82 / [($11 x 4) + $52]

MFP = 82 / 96

MFP before buying the new equipment = 0.8542 carts/$

Putting the calculated values in the above formula, we get;

Growth in productivity = [(0.8542 - 0.8515) / 0.8542] x 100

Growth in productivity = (0.0027 / 0.8542) x 100

Growth in productivity = 0.32%

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