A plant is going to buy a new machine. A productivity analysis is being done for
ID: 2339661 • Letter: A
Question
A plant is going to buy a new machine. A productivity analysis is being done for the purchase. The current machine produces 20,000 parts per year. It needs 2500 labor hrs per year at a labor rate of $40 per hr and S80,000 capital cost per year After automation, it is estimated to take 1500 labor hrs and $200,000 capital cost per year. It will then produce 30000 parts per year. Labor rate increases to S45/Hr Consider only labor and capital inputs. Ignore all other inputs. Find the labor, capital and total factor productivity now and after automation. Would you recommend the automation project? Why and why not? 1. Do all calculations on ExcelExplanation / Answer
Answer
Working
Current position
After automation
A
Capital cost
$ 80,000.00
$ 200,000.00
B
No. of labor hours
2,500
1,500
C
Rate per labor hour
$ 40.00
$ 45.00
D = B x C
Amount of labor cost
$ 100,000.00
$ 67,500.00
E = A + D
Total cost
$ 180,000.00
$ 267,500.00
F
No. of parts produced
20,000
30,000
G = E/F
Cost per part
$ 9.00
$ 8.92
>Total cost will increase after automation
>Efficiency of labor force will also increase from 0.125 labor hours per part to 0.05 labor hours per oart after automation.
>No. of parts produced will increase.
>Net Cost per part produced will get decreased after automation.
>Efficiency and productivity will increase.
>Cost per part is reduced from $ 9 per part to $ 8.92 per part.
Working
Current position
After automation
A
Capital cost
$ 80,000.00
$ 200,000.00
B
No. of labor hours
2,500
1,500
C
Rate per labor hour
$ 40.00
$ 45.00
D = B x C
Amount of labor cost
$ 100,000.00
$ 67,500.00
E = A + D
Total cost
$ 180,000.00
$ 267,500.00
F
No. of parts produced
20,000
30,000
G = E/F
Cost per part
$ 9.00
$ 8.92
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