Question

Topic 2:

Book: Operations and Supply Chain Management Jacobs & Chase 14e

2. The Levy Box plant produces wooden packing boxes to be used in the local seafood industry. Current operations allow the company to make 600 boxes per day, in two 8-hour shifts (300 boxes per shift). The company has introduced some moderate changes in equipment, and conducted appropriate job training, so that production levels have risen to 400 boxes per shift. Labor costs average $13 per hour for each of the 5 full-time workers on each shift. Capital costs were previously $4,000 per day, and rose to $4,200 per day with the equipment modifications. Energy costs were unchanged by the modifications, at $400 per day.

a) What is the firm's multifactor productivity ( exhibit 2.5) before and after the changes?

b) What is the firm's labor hours productivity before and after the changes?

c) What is the percent change in the multifactor productivity before and after the changes?

Answer 1

Answer: Given:

Initial Conditions:

Total Boxes per 8 hour shift = 300 boxes

Labor costs = $13 per hour per worker

No. of labor hours per shift = 5 * 8 = 40 hours

Total labor cost per shift = 40 * 13 = $520

Capital costs for 2 shifts = $4000

Capital cost per shift = 4000 / 2 = $2000

Energy costs for 2 shifts = $400 per day

Energy cost per shift = 400 / 2 = $200

Total costs = 520 + 2000 + 200 = $2720

New conditions:

Total Boxes per shift = 400 boxes

No. of labor hours per shift = 5 workers * 8 hours = 40 hours

Total labor cost per shift = 40 * 13 = $520

Capital costs for 2 shifts = $4200

Capital cost per shift = 4200 / 2 = $2100

Energy costs for 2 shifts = $400 per day

Energy cost per shift = 400 / 2 = $200

Total costs = 520 + 2100 + 200 = $2820

a) Multifactor productivity in intial case = No. of boxes / Total cost = 300 / 2720 = 0.11 box per $

Multifactor productivity in new case = No. of boxes / Total cost = 400 / 2820 = 0.14 box per $

b) Labor hours productivity in intial case = No. of boxes / No. of labor hours = 300 / 40 = 7.5 boxes per hour

Labor hours productivity in new case = No. of boxes / No. of labor hours = 400 / 40 = 10 boxes per hour

c) Percent change in the multifactor productivity = (New multifactor productivity - Initial multifactor productivity) / (Initial multifactor productivity) = (0.14 - 0.11) / 0.11 = 0.272 = 27.2% increase

-----------------------------------------------------------------------------------------------------------------------

In case of any doubt, please ask through the comment section before Upvote/downvote.