Question

A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labor content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used 6 workers, who together produced an average of 70 carts per hour. Workers receive $18 per hour, and machine cost was $30 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $11 per hour while output increased by 6 carts per hour.

A. Compute labor productivity under each system. Use carts per worker per hour as the measure of labor productivity.
B. Compute the multifactor productivity under each system. Use carts per dollar cost (labor plus equipment) as the measure.
C. Comment on the changes in productivity according to the two measures.

Answer 1

A. Compute labor productivity under each system. Use carts per worker per hour as the measure of labor productivity.

• old system = 70 carts / 6 workers = 11.67 carts per worker
• new system = 76 carts / 5 workers = 15.2 carts per worker

B. Compute the multifactor productivity under each system. Use carts per dollar cost (labor plus equipment) as the measure.

• old system = 70 carts / ($108 + $30) = 0.51 carts per dollar
• new system = 76 carts / ($90 + $41) = 0.58 carts per dollar

C. Comment on the changes in productivity according to the two measures.

• The new system is more productive and efficient since it uses less workers to produce a higher output. The additional costs of implementing the new system are lower than the cost of employing more workers.

Step-by-step explanation:

Multi factor productivity = total output / (cost of wages + material cost + overhead cost)