Question

The current demand is 40 customers per day. Mr. Miller expects that the demand grows to 50 customers per day with the promotion. The shop has four technicians and they receive $15 per hour. In addition to the labor cost, the shop incurs overhead that is 1.2 times the labor cost and the equipment cost that is $10 per customer. The shop operates 8 hours per day. In order to meet the larger demand, Mr. Miller considers the following three options:

Option A: Overtime	The current four technicians will work for two extra hours. They will be paid extra 10 dollars per hour for the overtime. As a result, the average hourly wage will become $17. The calculated is as follows: 8 hours×$15+2 hours×$2510 hours=$17 per hour
Option B: New hire	The shop will hire one technician. The work hours and wage for the new technician will be the same as for the current technicians.
Option C: Equipment upgrade	The shop upgrades equipment. With the upgrade, the equipment cost will increase to $15 per customer. However, the shop will be able to process all customers (50 customers per day) within the regular work hours (8 hours per day).

The important information is summarized in Table 4:

Table 4: How to Meet Growing Demand?

	Number of technicians	Customers processed per day	Work hours per day	Hourly wage	Overhead rate	Equipment cost per customer
Current	4	40	8	$15	1.2	$10
Option A	4	50	10	$17	1.2	$10
Option B	5	50	8	$15	1.2	$10
Option C	4	50	8	$15	1.2	$15

Calculate the current labor cost.

1. 10 dollars per day
2. 12 dollars per day
3. 60 dollars per day
4. 120 dollars per day
5. 480 dollars per day

Calculate the current equipment cost.

1. 80 dollars per day
2. 100 dollars per day
3. 320 dollars per day
4. 400 dollars per day
5. 3,200 dollars per day

Calculate the current overhead cost.

1. 12 dollars per day
2. 14 dollars per day
3. 72 dollars per day
4. 144 dollars per day
5. 576 dollars per day

Calculate the labor cost in Option A.

1. 13 dollars per day
2. 14 dollars per day
3. 68 dollars per day
4. 170 dollars per day
5. 680 dollars per day

Calculate the equipment cost in Option C.

1. 120 dollars per day
2. 188 dollars per day
3. 480 dollars per day
4. 750 dollars per day
5. 6,000 dollars per day

Calculate the current multifactor productivity (labor cost + equipment cost + overhead). Round the number to four decimal places.

1. 0.0275 customers per dollar input
2. 0.0752 customers per dollar input
3. 0.1099 customers per dollar input
4. 0.2326 customers per dollar input
5. 0.3640 customers per dollar input

Calculate the multifactor productivity (labor cost + equipment cost + overhead) for Option A. Round the number to four decimal places.

1. 0.0063 customers per dollar input
2. 0.0251 customers per dollar input
3. 0.0770 customers per dollar input
4. 0.1002 customers per dollar input
5. 0.2637 customers per dollar input

Calculate the multifactor productivity (labor cost + equipment cost + overhead) for Option B. Round the number to four decimal places.

1. 0.0069 customers per dollar input
2. 0.0091 customers per dollar input
3. 0.0275 customers per dollar input
4. 0.0752 customers per dollar input
5. 0.2326 customers per dollar input

Calculate the multifactor productivity (labor cost + equipment cost + overhead) for Option C. Round the number to four decimal places.

1. 0.0069 customers per dollar input
2. 0.0277 customers per dollar input
3. 0.0567 customers per dollar input
4. 0.2637 customers per dollar input
5. 0.3612 customers per dollar input

Which option(s) has the highest multifactor productivity?

1. Option A
2. Option B
3. Option C
4. Option A and Option C
5. Option B and Option C

Answer 1

Calculate the current labor cost.-

Number of Workers = 4

Workhours per day = 8

Wage Rate = 15 per hour

Labor Cost = 15*8*4 = 480

_____________________________________________

Calculate the current equipment cost -

Number of Customers = 40

Equipment Cost per Customer = 10

Current Equipment Cost = 40*10 = 400

____________________________________________________

Calculate the current overhead cost -

Overhead Cost = 1.2*Labor Cost

Overhead Cost = 1.2*480 = 576

________________________________________________________

Calculate the labor cost in Option A -

Labor Cost = 4*10*17 = 680

_________________________________________________________

Calculate the equipment cost in Option C -

Equipment Cost = 50*15 = 750

____________________________________________________________________

Productivity = Output/Input

Here,

Output = Number of Customer Processed

Input = Total Cost = Labor Cost + Overhead Cost + Equipment Cost

For Current -

Output = 40

Input = 4*8*15 + 4*8*15*1.2 + 40*10 = 1456

Multifactor Productivity = 40/1456 = 0.0275

For Option A -

Output = 50

Input = 4*10*17 + 4*10*17*1.2 + 50*10 = 1996

Multifactor Productivity = 50/1996 = 0.0251

For Option B -

Output = 50

Input = 5*8*15 + 5*8*15*1.2 + 50*10 = 1820

Multifactor Productivity = 50/1820 = 0.0275

For Option C -

Output = 50

Input = 4*8*15 + 4*8*15*1.2 + 50*15 = 1806

Multifactor Productivity = 50/1806 = 0.0277

Option C has the highest multifactor productivity.