The management team for Buddy\'s Bats is considering two locations for a plant t
ID: 417518 • Letter: T
Question
The management team for Buddy's Bats is considering two locations for a plant to manufacture wooden baseball bats. The plant will produce 500 bats per week. The fixed setup costs for both plants are identical.
Plant A can produce 500 bats per week. The plant works one 8 hour shift per day with 5 staff. The plant works 5 days per week. The average wage is $25 per hour. The plant would use 600 units of maple and can buy maple at $5 per unit. Based on location and staffing levels, the plant would be assigned an overhead allocation of $1000 per week.
Plant B can produce 500 bats per week. The plant works one 8 hour shift per day with 7 staff. The plant works 5 days per week. The average wage is $20 per hour. The plant would use 625 units of maple to make the bats and can buy maple at $4 per unit. Based on location and staffing levels, the plant would be assigned an overhead allocation of $1,500 per week.
a) What is the total cost of production for a week at each plant? What is the cost per bat? What is the labour cost per bat?
b) Calculate and compare the labour productivity of the two options. Which one is better?
c) Calculate and compare the multi-factor (labour, input and overhead) productivity of the two options. Which location is preferred?
d) Give two other factors that the management team should consider before choosing a location (there may be more than 2 but only 2 are required).
e) Plant A’s manager believes he can increase labour productivity by 10% by increasing wages to $26 per hour. How many bats can they now make in a week? What is the total labour cost per bat and total cost per bat? How much have each improved?
Explanation / Answer
(a) Plant A
Cost of labour = 5 persons x 8 hours x $25 x5 days = 5000 per week
Cost of material = 600x5 = 3000
Overhead cost = 1000
Total cost = 9000
(b) Plant B
Cost of labour = 8x7x5x20 = 5600
Cost of Material =625x4 = 2500
Overhead cost = 1500
Total cost = 9600
(a) Based on the costs, Plant A will be more suitable.
The cost of bat in case A will be 9000/500 =18
Cost of bat in case B = 9600/500 = 19.2
Labour cost per bat in A = 5000/500 = 10
Labour cost in B = 5600/500 = 11.2
(b) Labour productivity in case A = labour hours / output = 200 / 500 = 0.4 hrs / unit
Labour productivity in case B = 280/500 = 0.56 hrs / unit
(c) MFP = Value of output / value of input
Case A = 500x C / 9000 = C/18 ( It is assumed that the a bat sells for $C)
Case B = 500C / 9600 = C/19.2
Location A will be more preferable.
(d) 1. Availability of raw material and Labour consistently.
2. Transportation cost of raw material and finished products.
3. Availability of power, water and nature of climate.
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