A company has introduced a process improvement that reduces processing time for

Question

A company has introduced a process improvement that reduces processing time for each unit; output is increased by 25 percent with less material, but one additional worker is required. Under the old process, five workers could produce 60 units per hour. Labor costs are $12/hour, and material input was previously $16/unit. For the new process, material is now $10/unit. Overhead is charged at 1.6 times direct labor cost. Finished units sell for $31 each. What increase in productivity is associated with the process improvement?

Explanation / Answer

Before: 60(31)/5(12)+60(16)+1.6(5)(12)

= 1860/1116 = 1.6667

After :

60(1.25)(31)/6(12)+75(10)+1.6(6)(12)

=2325/937.2= 2.481

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