A company that makes shopping carts for supermarkets and other stores recently p

Question

A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labor content o jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used 5 workers, who together produced an average of 80 carts per hour. Workers receive $12 per hour, and the machine cost was $50 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $10 dollars per hour while output increased by 5 carts per hour. B. Compute the multifactor productivity under each system. Use carts per dollar cost. (labor plus equipment) as the measure (Round your answers to 2 decimal places) Before carts/dollar cost After carts/dollar cost. C. Comment on the changes in productivity according to the two measures. (Round your intermediate calculations and final answers to 2 decimal places). Labor productivity increased by % Multifactor productivity increased by %.

Explanation / Answer

Given data

Current Situation

Output/hr = 80

Workers = 5 workers

Wages/hr = $12 /hour

Machine = $50 per hour

New machine

Output/hr = 85

Workers = 4 workers

Wages/hr = $12 /hour

Machine = $60 per hour

Labor productivity

before = 80carts /5 workers = 16 carts per worker per hour

After = 85carts /4 workers = 21.25 carts per worker per hour

b)Multifactor productivity:

Before

Total cost = $12* 5 + $50 = $60 +$ 50= $110

Multifactor productivity = total units produced /Cost

= 80/ 110 =0.72 carts/dollar

After

Total cost = 12* 4 + 60 = 48 + 60 = $108

Multifactor productivity = 85/108 = 0.79 Carts/dollar

c)  changes in multifactor productivity =( 0.79-0.72)/ 0.72 = 0.097 = 9.72%

Multifactor productivity increased by 9.72%

changes in labor productivity = (21.25-16)/16 = 0.3281= 32.81%

Labor productivity increased by 32.81%

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