A company has introduced a process improvement that reduces the processing time for each unit and increases output by 25% with less material but one additional worker.
Under the old process, five workers could produce 60 units per hour. Labor costs are $12/hour, and material input was $16/unit.
For the new process, material input is now $10/unit and overhead is charged at 1.6 times direct labor cost. Finished units sell for $31 each.
Compute single factor productivity of labor in the old system. (Compute it in four possible ways.)
Compute all factor productivity for both old and new systems.
Factor Old System New System Output 60 60(1.25) = 75
# of workers 5 6
Worker cost $12/hr $12/hr
Material $16/unit $10/unit
Overhead 1.6(labor cost) 1.6(labor cost)
Price 31 31