A manufacturing firm receives a contract to assemble 1000 units of test equipmen

Question

A manufacturing firm receives a contract to assemble 1000 units of test equipment and must decide how to organize its assembly operation. Skilled workers, at $33 per hour each, could be assigned to individually assemble the equipment. Each worker would do all the assembly steps, which would take 2.6 hours for each unit. The alternate approach would be to set up a team of four less skilled workers, at $19 per hour each, and organize the work so that each does part of the assembly. The4-man team is able to assemble a unit in 1 hour. Which option is the more economical approach?

Explanation / Answer

Output = 1000 units

Time required by individual = 2.6 hours per unit

Total time required = 2.6 * 1000 = 2600 hours

Total Cost Individual = $33 * 2600 = 85,500

Time required by team of 4 members = 1 hour per unit

Total time required = 1 * 1000 = 1000 hours

Total Cost Team = $19 * 4 * 1000 = 76,000

Hence team of 4 should be selected

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