Oliver Metals Products Inc. (OMPI) manufactures automobile spare parts for car m

Question

Oliver Metals Products Inc. (OMPI) manufactures automobile spare parts for car manufacturers. Management is attempting to search for ways to reduce manufacturing labor costs and has received a proposal from Harold Consulting Company (HCC) to rearrange the production floor next year. Using the information below regarding current operations and the new proposal, which of the following decisions should OMPIs management accept? Required machine operators Materials-handling workers Employee average pay Hours worked per employee Current Proposed 16 12 3.00 3.00 $15 per hour $18 per hour 3,400 3,150 A) Rearrange the production floor. B) Do not change the production floor. C) Either, because it makes no difference to the employees. D) It doesnt matter because the costs incurred will remain the same.

Explanation / Answer

Labor cost = No. of labors * Loabor hours worked * pay per hour

where, No. of labors = machine operators + Material handling workers

Current No. of workers = 16 + 3 = 19

Proposed No. of workers = 12+3 = 15

So. Current labor cost = 19 * 15 * 3400 = $969000

Proposed Labor Cost = 15 * 18 * 3150 = $850500

As the proposed labor cost is less in the proposed case. So the production floor should be rearranged

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