One Hour Loan offers customized loans. Customers call a toll free number with a

Question

One Hour Loan offers customized loans. Customers call a toll free number with a specific loan request, and obtain a response within an hour. One Hour Loan's business process includes five activities which must be conducted in the sequence described below. (The time required for each activity is shown in parenthesis):

Activity 1: Answer customer call and record key information. (3 minutes)

Activity 2: Gather and format the information (obtain credit scores, organize customer specific needs) for analysis. (5 minutes)

Activity 3: Analyze the information; Check the credit worthiness, and decide loan amount and APR to offer.(7 minutes)

Activity 4: Perform final checks on loan offer. (3 minutes)

Activity 5: Call customer back with the new loan offer and close. (4 minutes)

The whole process is conducted by three workers in a worker paced line. the assignment of tasks to worker is the following:

W1 does Activity 1.

W2 does Activity 2 and 3.

W3 does Activity 4 and 5.

What are the direct labor costs for one loan applocation? Assume a wage rate of $11 per hour.

Explanation / Answer

Since the processing of loan application is done in sequence the direct labor cost will be same as if there were one worker for all the task or different workers for different tasks. The total time required for one loan application is

3 + 5 + 7 + 3 + 4 = 22 minutes.

Now since our wage rate is $11 per hour, the direct labor cost for one loan application is

(22/60)*11 = $4.03

The direct labor cost for unit is $4.03

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