Question

A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labour content of the jobs needed to pro- duce the shopping carts. Prior to buying the new equip- ment, the company used four workers, who produced an average of 80 carts per hour. Labour cost was $10 per hour and machine cost was $40 per hour. With the new equipment, it was possible to transfer one of the workers to another department. Machine cost increased by $10 per hour while output increased by four carts per hour.

a. Calculate labour productivity before and after the new equipment. Use carts per worker per hour as the meas- ure of labour productivity.

b. Calculate the multi-factor productivity before and after the new equipment. Use carts per dollar cost (labour plus machine) as the measure.

c. Comment on the changes in productivity according to the two measures. Which one do you believe is more pertinent for this situation?

Answer 1

Question: A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labour content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used four workers, who produced an average of 80 carts per hour. Labour cost was $10 per hour and machine cost was $40 per hour. With the new equipment, it was possible to transfer one of the workers to another department. Machine cost increased by $10 per hour while output increased by four carts per hour.

Answer:

a. Calculate labour productivity before and after the new equipment.

Labour Productivity (before the purchase of new equipment):

Labour Productivity = 80 / 4 = 20 carts per worker per hour

Labour Productivity (after the purchase of new equipment):

Labour Productivity = 84 / 3 = 28 carts per worker per hour

b. Calculate the multi-factor productivity before and after the new equipment.

Multifactor Productivity (before the purchase of new equipment):

Multifactor Productivity = 80 / (4 wkrs x 10 per hr) + 40 per hour

Multifactor Productivity = 80 / ((4 x 10) + 40) = 1

Multifactor Productivity = 1 cart per dollar

Multifactor Productivity (after the purchase of new equipment):

Multifactor Productivity = 84 / (3 wkrs x 10 per hr) + 50 per hour

Multifactor Productivity = 84 / ((3 x 10) + 50) = 1.05

Multifactor Productivity = 1.05 carts per dollar

c. Comment on the changes in productivity according to the two measures. Which one do you believe is more pertinent for this situation?

Growth percentage:

Labor Productivity = ((28 - 20) / 20) x 100 = 40%

Labor Productivity Increased by 40%

Multifactor Productivity = ((1.05 - 1) / 1) x 100 = 5%

Multifactor Productivity Increased by 5%