Question

In determining whether It is economically advisable to invest $3.5 million per million pairs of capacity for a plant facilities upgrade that will boost labor productivity by 25%, it is accurate to say that the resulting drop in labor costs per pair produced.

1. will be $0.15 (from $0. 75 to $0.60) at a plant where total annual compensation per employee is currently $3,000 and labor productivity is 4,000 pairs per worker-the labor cost reduction would be a far larger $1.20 per pair at a plant where total annual compensation per employee is currently $24,000 and labor productivity is 4,000 pairs per worker.
2. will be the same for all of the company's plants because the gains in labor productivity are 25% irrespective of what other differences In labor-related conditions may exist.
3. will be greater for Asia-Pacific plants with 8-milllon pairs of capacity than for Asia-Pacific plants with 4-million pairs of capacity.
4. will be greatest at plants where total annual compensation is comparatively low and labor productivity is comparatively high.
5. will be smallest at plants where total annual compensation is comparatively high and labor productivity is also comparatively high.

Answer 1

The labor cost reduction resulting from the plant facilities upgrade will be greatest at plants where total annual compensation is comparatively low and labor productivity is comparatively high.

Step-by-step explanation:

The accurate statement regarding the drop in labor costs per pair produced resulting from the plant facilities upgrade is option 4, which states that the labor cost reduction will be greatest at plants where total annual compensation is comparatively low and labor productivity is comparatively high.

When total annual compensation is low and labor productivity is high, the cost per pair produced will be reduced significantly. This is because the labor costs will be lower due to comparatively lower wages, and the productivity of the workers will be higher, resulting in more pairs being produced in the same amount of time.

Therefore, the plant that currently has total annual compensation per employee of $3,000 and labor productivity of 4,000 pairs per worker will experience a larger labor cost reduction of $1.20 per pair compared to the plant with total annual compensation per employee of $24,000 and labor productivity of 4,000 pairs per worker, which will experience a labor cost reduction of $0.15 per pair.