Lillian Fok is president of Lakefront Manufacturing, a producer of bicycle tires

Question

Lillian Fok is president of Lakefront Manufacturing, a producer of bicycle tires. Fok makes 1,000 tires per day with the following resources: 425 hours per day @$12.00 per hour 20,000 pounds per day @ $1.00 per pound $5,250 per day $10,000 per day Labor: Raw Material: Energy Capital: a) Labor productivity per labor hour for these tiresabor hour (round your response to two decimal places b) Multifactor productivity for these tires ires/dollar (round your response to four decimal places). c) The percent change in multifactor productivity if Fok can reduce the energy bill by $950 per day without cutting production or changing any other inputs%(enteryr response as a percentage rounded to two decimal places). Note: calculate the new multifactor productivity to four decimal places before calculating the percentage change.

Explanation / Answer

a) Computation of labor productivity per labor hour for tires: Labor productivity per labor hour = Production per day / Labor hours per day = 1,000 tires / 425 hours per day = 2.35 tires / labor hours b) Computation of multifactor productivity for tires: Multifactor productivity = Production per day / Total cost = 1,000 tires / $40,350 = 0.0248 tires / dollar Total cost: Labor cost (425 hours X $12) = $         5,100 Raw material cost (20,000 pounds X $1) = $       20,000 Energy cost = $         5,250 Capital cost = $       10,000 Total cost = $       40,350 c) Percentage change in multifactor productivity = (0.0254 - 0.0248) / 0.0248 2.41% Computation of multifactor productivity for tires, if energy cost reduced by $950 per day: Multifactor productivity = Production per day / Total cost = 1,000 tires / $39,400 = 0.0254 tires / dollar Total cost: Labor cost (425 hours X $12) = $         5,100 Raw material cost (20,000 pounds X $1) = $       20,000 Energy cost = $         4,300 Capital cost = $       10,000 Total cost = $       39,400

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