A company that makes shopping carts for supermarkets and other stores recently p
ID: 427170 • Letter: A
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 5 workers, who together produced an average of 100 carts per hour. Workers receive $11 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 $12 per hour while output increased by 6 carts per hour.
a. Compute labor productivity under each system. Use carts per worker per hour as the measure of labor productivity.
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.)
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.
Explanation / Answer
(a)
Old system
Input per hour = 5 labor hours
Output per hour = 100 carts
Labor productivity = 100/5 = 20 carts per worker per hour
New system
Input per hour = 4 labor hours
Output per hour = 106 carts
Labor productivity = 106/4 = 26.5 carts per worker per hour
(b)
Old system
Input labor cost per hour = 5 workers x $11 per worker per hour = $55
Input equipment cost = $30
Total input = $55+$30 = $85
Output per hour = 100 carts
So, multifactor productivity = 100 / 85 = 1.176 carts per dollar
New system
Input labor cost per hour = 4 workers x $11 per worker per hour = $44
Input equipment cost = $30+$12 = $42
Total input = $44+$42 = $86
Output per hour = 106 carts
So, multifactor productivity = 106 / 86 = 1.233 carts per dollar
(c)
Old System New System Labor Productivity(Carts per worker hrs.) 20.0 1.176 Multifactor productivity
(Carts per dollar 26.5 1.233 % Increase 32.50% 4.85%
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