Problem 2-4 A company that makes shopping carts for supermarkets and other store

Question

Problem 2-4 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 7 workers, who together produced an average of 90 carts per hour. Workers receive $14 per hour, and machine cost was $30 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 4 carts per hour. a. Compute labor productivity under each system. Use carts per worker per hour as the measure of labor productivity. (Round your answers to 3 decimal places.) Before After carts per worker per hour carts per worker per hour b. Compute the multifactor productivity under each system. Use carts per dollar cost (labor plus equipment) as the measure. (Round your answers to 3 decimal places.) Before After carts/dollar cost carts/dollar cost c. Comment on the changes in productivity according to the two measures. Round your intermediate calculations to 3 decimal places and final answers to 2 decimal places. (Click to select) i by Labor productivity Multifactor productivity | (Click to select) by

Explanation / Answer

Scenario : Prior to buying new equipment :

Number of carts produced per hour = 90

Total labour cost per hour

= Wage per worker per hour x Number of workers

= $14 x 7

= $98

Machine cost per hour = $30

Total cost = Labour cost + Machine cost = $98 + $30 = $128

Labour productivity ( carts per worker per hour )

= 90 /7

= 12.857

Multifactor productivity

= Carts per Dollar cost

= 90 / 128

= 0.703

Scenario : after buying new equipment :

Number of carts produced per hour = 90

Revised number of workers = 6

Revised equipment cost = $30 + $10 = $40

Total labour cost per hour

= Wage per worker per hour x Number of workers

= $14 x 6

= $84

Machine cost per hour = $40

Total cost = Labour cost + Machine cost = $84 + $40 = $124

Labour productivity ( carts per worker per hour )

= 90 /6

= 15

Multifactor productivity

= Carts per Dollar cost

= 90 / 124

= 0.725

LABOUR PRODUCTIVITY :

BEFORE : 12.857 CARTS PER WORKER PER HOUR

AFTER : 15 CARTS PER WORKER PER HOUR

MULTIFACTOR PRODUCTIVITY :

BEFORE : 0.703 CARTS/ DOLLAR COST

AFTER : 0.725 CARTS / DOLLAR COST

Change in labour productivity

= ( 15 – 12.857) / 12.857 x 100

= 2.143/12.857x 100

= 16.667 % ( 16.67% rounded to 2 decimal places ) INCREASE

Change in multifactor productivity

= ( 0.725 – 0.703)/ 0.703x 100

= 0.022/0.703x 100

= 3.034 % ( 3.03% rounded to 2 decimal places )INCREASE

LABOUR PRODUCTIVITY INCREASE BY16.67%

MULTIFACTOR PRODUCTIVITY INCREASE BY 3.03%

BEFORE : 12.857 CARTS PER WORKER PER HOUR

AFTER : 15 CARTS PER WORKER PER HOUR

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