Problem 3: The Dulac Box plant produces wooden packing boxes to be used in the l
ID: 399398 • Letter: P
Question
Problem 3: The Dulac Box plant produces wooden packing boxes to be used in the local seafood industry. Current operations allow the company to make 500 boxes per day, in two 8-hour shifts (250 boxes per shift). The company has introduced some moderate changes in equipment, and conducted appropriate job training, so that production levels have risen to 300 boxes per shift. Labor costs average $10 per hour for each of the 5 full-time workers on each shift. Capital costs were previously $3,000 per day, and rose to $3,200 per day with the equipment modifications. Energy costs were unchanged by the modifications, at $400 per day. What is the firm's multifactor productivity before and after the changes?Explanation / Answer
Solution:
Multifactor productivity is calculated as,
Multifactor productivity = Total output (in units) / Total input (in dollars)
Before changes:
Total output = 500 boxes per day
Labor costs = $10 per hour x 5 workers x 8 hours x 2 shifts = $800
Capital costs = $3,000 per day
Energy costs = $400 per day
Total input = Labor costs + Capital costs + Energy costs
Total input = $800 + $3,000 + $400
Total input = $4,200
Multifactor productivity = Total output / Total input
Multifactor productivity = 500 / 4200
Multifactor productivity (Before changes) = 0.119 boxes per dollar
After changes:
Total output = 600 boxes per day (300 boxes per shift x 2 shifts)
Labor costs = $10 per hour x 5 workers x 8 hours x 2 shifts = $800
Capital costs = $3,200 per day
Energy costs = $400 per day
Total input = Labor costs + Capital costs + Energy costs
Total input = $800 + $3,200 + $400
Total input = $4,400
Multifactor productivity = Total output / Total input
Multifactor productivity = 600 / 4400
Multifactor productivity (After changes) = 0.136 boxes per dollar
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