At Oxford Lumber, Inc., Tom Cruise, a president and a producer of an apple crate

Question

At Oxford Lumber, Inc., Tom Cruise, a president and a producer of an apple crates sold to growers, has been able, with his current equipment, to produces 240 crates per 100 logs. He currently purchases 100 logs per day, and each log required 3 labor hours to process. He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If this is the case, he increases his production to 260 crates per 100 logs. His labor hours will increase by 8 hours per day.

(a) What is the labor productivity of the current system? What is the labor productivity of a new system with buyer? (Please compare two systems.)

(b) What is the percentage change of productivity in this case? (Please specify whether it either increases or decreases.)

Explanation / Answer

Scenario under current system :

Output = 240 crates

Labour cost =3 labour hours/ log x 100 logs = 300 hours

Labour productivity = Output / Labour cost = 240 /300 = 0.80

Scenario under future system :

Output = 260 crates

Revised labour hours ( after increase in labour hours by 8 hours ) =300 + 8 = 308 hours

Labour productivity = Revised output / Revised Labour cost = 260 / 308 = 0.844

Percentage change in productivity = ( 0.844 – 0.80)/0.80 x 100 = 0.044/0.8 x 100 = 5.5%

LABOUR PRODUCTIVITY OF CURRENT SYSTEM = 0.80

LABOUR PRODUCTIVITY OF THE NEW SYSTEM = 0.844

PERCENTAGE CHANGE IN PRODUCTIVITY = 5.5%( PRODUCTIVITY INCREASES)

LABOUR PRODUCTIVITY OF CURRENT SYSTEM = 0.80

LABOUR PRODUCTIVITY OF THE NEW SYSTEM = 0.844

PERCENTAGE CHANGE IN PRODUCTIVITY = 5.5%( PRODUCTIVITY INCREASES)

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