At Lumber, Inc., Art Brinley, president and producer of apple crates sold to gro

Question

At Lumber, Inc., Art Brinley, president and producer of apple crates sold to growers, has been able, with his current equipment, to produce 260 crates per 100 logs. He currently purchases 100 logs per day, and each log requires 3 labor hours to process. He believes that he can hire a professional log buyer who can identify a better-quality log at the same cost. If he is correct, he can increase his production to 280 crates per 100 logs. His labor hours will increase by 8 per day for the new buyer.

A)What will be in the impact on productivity in crates per labor hour if the buyer is hired?

  B)    Art Brinley has decided to look at his productivity from a multi-factor perspective. To do so, he has determined his labor, capital, energy, and material usage and has decided to use dollars as the common denominator. His total labor hours are now 192 per day, but will increase to 200 per day once the log buyer is hired. His capital and energy costs are $350 and $150 per day, respectively. His material costs for 100 logs per day is $1000, and he is not planning on this changing with the new buyer. He pays an average of $18/hour (including fringe) and this will remain the same including for the new log buyer. What is the change in multifactor productivity?

(C) Art also has the option of adding new machinery to his operation which can reduce the direct labor component to 2.6 hours per log, but which will increase his daily capital cost to $500/day and his energy cost to $200/day. To use the new machine he will have to hire the log buyer since he will need higher quality wood. Though his headcount may drop somewhat (16 hours/day) due to the change in direct labor, additional training will increase the labor rate (with fringe) for all employees to $20/hour. Should he invest in the machine, why or why not?

Explanation / Answer

Answer:

total logs=100

total production=260 crates per 100 log

each log require time to process= 3 labor hours

so total require time to process= 3*100=300 labor hours

productivity per labor hour=260/300=0.87 crates per labor hour

For professional log buyer

total labor hours=300+8=308

total crates produce=280

A)

so for ney buyer productivity per labor hour=280/308=0.90 crates per labor hour

so productivity for new buyer increased by 0.30 crates per labor hour.

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