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Increased Productivity

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1. 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 five workers, who produced an average of 80 carts per hour. Labor cost was $10/hour and machine cost was $40/hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $10/hour while output increased by four carts per hour.

a. Compute labor productivity under each system. Use carts per worker hour as the measure of labor productivity.
b. Compute the total productivity under each system. Use carts per dollar cost (labor plus equipment) as the measure.
c. Comment on the changes in productivity according to the two measures, and on which one you believe is the more pertinent in this situation?

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Solution Summary

Between prevailing & new system of manufacturing Shopping Carts, a Company gains in terms of higher labor & total productivity by adopting a measure of buying a new more productive equipment and thereby reducing no of labors.

The labor & total productivity increased considerably in new system.

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Answers:

Q1. For prevailing system,

labor cost for 5 labors @$10/hr = $50
Existing equipment cost @$40/hr = $40
Total = $90
Therefore, For producing 80 carts/hr total cost = $90/hr

For the new system,
labor cost for 4 labors $10/hr = $40 ...

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