Ms. Jones works a total of 12 hours per day to produce lacquered wicker baskets

Question

Ms. Jones works a total of 12 hours per day to produce lacquered wicker baskets for a local crafts store. Total material cost for each wicker basket is $3.50; she has to nvest $20 in the necessary supplies (expendables) per day; energy costs are assumed to be $4.00 per day; and she makes $10 per hour for her labor. Currently, she produces 240 wicker baskets per day. She thinks that by re-engineering the assembly process she can increase her rate to 300 wicker baskets per day Note: Report all total productivities as decimals rounded to four decimal places. 1. What is her daily labor productivity: at present? a. b. with the new process? c. What is the percent change in labor productivity? 2. Viewing this from a total (multifactor) productivity perspective, what is her daily productivity a. at present? b. with the new process? c. What is the percent change in total productivity? Ms. Jones has decided that the process change will be adopted only if there is at least a 35 percent increase in daily productivity. a. Based on the labor productivities calculated in part 1, should the new system 3. be adopted? b. Based on the total productivities calculated in part 2, should the new system be adopted? At least how many baskets should be produced a day to meet management's goal of at least a 35 percent daily labor productivity increase? Suppose in addition to the aforementioned process re-engineering, Ms. Jones is now considering adopting a different lacquer. Each of the 300 wicker baskets produced daily the new way with this lacquer will have a stronger finish and improve customer satisfaction. However, this lacquer will increase the material costs by $0.50 per basket. What is the new total productivity? 4. 5.

Explanation / Answer

1) a. Labor productivity

At Present = Output / Input (labor hours)

= 240 / 12

= 20 wicker baskets per hour of labor

b. With new process = 300/12 = 25 wicker baskets per hour of labor

c. Percent change in labor productivity = (25-20)/20 = 25% increase

2) a. Multifactor productivity

Multifactor productivity (MFP) = Output / Input (Total cost)

Total cost = Material + Supplies + Energy cost + Labor cost

MFP At present = 240 / (240*3.5+20+4+12*10)

= 0.244 wicker baskets per $  

b. With new process = 300 / (300*3.5+20+4+12*10) = 0.251 wicker baskets per hour of labor

c. Percent change in labor productivity = (0.251-0.244)/0.244 = 3% increase

3)

a. Increase in labor productivity is only 25% , which is less than her expectation, therefore new system should not be adopted

b. Increase in multifactor (total) productivity is only 3%, which is less than expectation, so the new system shoulb not be adopted.

4) Number of baskets to produce each day = 240*(1+35%) = 324 backets per day

5) New total productivity =300/(300*4+20+4+12*10) = 0.2232 wicker basket per $  

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