Gibson\'s Bodywork does automotive collision work. An insurance agency has deter

Question

Gibson's Bodywork does automotive collision work. An insurance agency has determined that the standard time to replace a fender is 2.5 hours (i.e., "standard output"-0.4 fenders per hour) and is willing to pay Gibson $50 per hour for labor (parts and supplies are billed separately). Gibson pays its workers $35 per hour. Suppose Gibson's workers take 4 hours to replace a fender a. Gibson's labor hour efficiency is %. Enter your response rounded to two decimal places. Given Gibson's labor costs, the company Y make money on the job. ency has to be b. Gibson's labor places.) our e 96 for Gibson to break even on the ob Enter your response rounded to wo decimal

Explanation / Answer

To be calculated:

a) Labor hour efficiency

b) Amount that Gibson’s makes

c) Labor efficiency for break-even

Given values:

Standard time = 2.5 hours

Standard output = 0.4 fenders per hour

Actual labour time = 4 hours

Actual output = 0.25 fenders per hour

Amount Gibson receives for labor = $50 per hour

Amount Gibson pays to labor = $35 per hour

Solution:

(a) Labor hour efficiency is calculated as;

Labor hour efficiency = (Actual output / Standard output) x 100

Labor hour efficiency = (0.25 / 0.4) x 100

Labor hour efficiency = 62.5%

(b) Profit is calculated as;

Profit = Total Revenue - Total Costs

Profit = ($50 x 2.5 hours) - ($35 x 4 hours)

Profit = - $15

Negative profit = Loss of $15

Given Gibson’s labor costs, the company loses $15 money on the job.

(c) Gibson’s will break-even on the job when the payment that it receives for labor is equal to the payment that it is paying to its labor.

Payment received for labor = $50 x 2.5 hours = $125

For break-even, Gibson’s must pay $125 to its labor. For $125 payment, the labor must finish the complete work in;

Labor time = Desired total payment / Actual payment per hour

Labor time = $125 / $35

Labor time = 3.57 hours or,

Actual output = 0.28 fenders per hour

Labor hour efficiency = (Actual output / Standard output) x 100

Labor hour efficiency = (0.28 / 0.4) x 100

Labor hour efficiency for break-even = 70%

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