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PRODUCTIVITY USING OLD AND NEW SYSTEM

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(Prob. 1: Productivity)
A company has introduced a process improvement that reduces processing time for each unit, so that output is increased by 25% with less material, but one additional worker required. Under 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 are sold for $31 each. What increase (or decrease) in productivity is associated with the process improvement?

(a) Productivity with old system

(b) Productivity with new system

(c) % change (increase or decrease) in productivity

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A company has introduced a process improvement that reduces processing time for each unit, so that output is increased by 25% with less material, but one additional worker required. Under old process, five workers could produce 60 units per hour. Labor costs are $12/hour, and material input was previously $16/unit. For the ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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