A company that makes lobster traps recently purchased some new equipment that re
ID: 345163 • Letter: A
Question
A company that makes lobster traps recently purchased some new equipment that reduces the labor content of the jobs needed to produce the traps. Prior to buying the new equipment, the company used six workers, who produced an average of 85 traps per hour. Workers receive $20 per hour, and machine cost was $45 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $10 per hour while output increased by four traps per hour. a. Compute labor productivity under each system. Use traps per worker per hour as the measure of labor productivity. b. Compute the multifactor productivity under each system. Use traps per dollar cost (labor plus equipment) as the measure. c. Comment on the changes in productivity according to the two measures, and on which one you believe is the more pertinent to this situation.
Explanation / Answer
ANSWER TO QUESTION # A :
Labour productivity under old system :
Number of lobster traps produced per hour = 85
Number of workers used = 6
Labour productivity = 85/ 6 = 14.17 ( rounded to 2 decimal places ) traps per worker per hour
Labour productivity under new system :
Number of lobster traps produced per hour = 85 + 4 = 89 traps per hour
Number of workers now = 6 -1 = 5
Labour productivity = 89/ 5 = 17.80 traps per worker per hour
ANSWER TO QUESTION # B :
Multifactor productivity under old system :
Total labour cost = $ 20 per worker per hour x 6 = $120
Equipment cost = $45 per hour
Total cost = $120 + $45 = $165
Output = 85 lobster traps per hour
Multifactor productivity = Output / Total cost = 85 / 165 = 0.515 traps per $ input
Multifactor productivity under new system :
Total labour cost = $ 20 per worker per hour x 5 = $100
Equipment cost = $45 + $10 = $55 per hour
Total cost = $100 + $55 = $155
Output = 89 traps
Multifactor productivity = output / Total cost = 89 / 155 = 0.574 traps per $ input
ANSWER TO QUESTION # C :
Since multifactor productivity is derived after taking into account of all inputs and not merely labor input, it provides more holistic view on labor productivity and therefore is more pertinent.
It can be seen from the calculations done above :
It can therefore be concluded easily that new system is is more superior to the earlier system
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