Ruggles Circuit Company manufactures circuit boards for other firms. Management

Question

Ruggles Circuit Company manufactures circuit boards for other firms. Management is attempting to search for ways to reduce manufacturing labor costs and has received a proposal from a consulting company to rearrange the production floor next year. Using the information below regarding current operations and the new proposal, which of the following decisions should management accept?

                              Currently           Proposed
Required machine operators      5       4.5
Materials-handling workers      1.25    1.25
Employee average pay    $8 per hour     $9 per hour
Hours worked per employee       2,100   2,000

A)

Do not change the production floor.
B)

Rearrange the production floor.
C)

Either, because it makes no difference to the employees.
D)

It doesn't matter because the costs incurred will remain the same.

I know the answer is B. but can someone explain why?? When I do calculation, the currently is 84000 and Proposed is 72000. I know we will keep Currently, is it right??

Explanation / Answer

Rearrange the production floor (which is Option B)

_________

Explanation:

We will have to calculate the total labor cost under both the scenarios to detemined the correct choice.

Total Labor Cost (Current) = Required Machine Operators*Hours Worked Per Employee*Employee Average Pay = 5*2,100*8 = $84,000

Total Labor Cost (Proposed) = Required Machine Operators*Hours Worked Per Employee*Employee Average Pay = 4.5*2,000*9 = $81,000

We will "Rearrange the Production Floor" because total labor cost will be less by $3,000 (84,000 - 81,000) in such a case. The proposal of the consulting company should, therefore, be accepted.

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