question archive Considering the number of pieces processed per hour as its output, Merrifield Post Office is evaluating the productivity of its mail processing centers
Considering the number of pieces processed per hour as its output, Merrifield Post Office is evaluating the productivity of its mail processing centers
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Considering the number of pieces processed per hour as its output, Merrifield Post Office is evaluating the productivity of its mail processing centers. The centers differ in the degree of automation, the type of work that can be performed, and the skill of the workers.
|
Center |
1 |
2 |
3 |
|
Pieces processed per hour |
1,000 |
2,000 |
3,000 |
|
Number of workers per hour |
10 |
5 |
2 |
|
Hourly wage rate |
$5.50 |
$10.00 |
$12.00 |
|
Overhead rate per hour |
$10.00 |
$25.00 |
$50.00 |
a) Calculate the multifactor productivity for each center.
b) Workers in Center 2 are scheduled to receive a 10% pay raise next month. What will be the change in the multifactor productivity rate? Also, what is the percentage change in the multifactor productivity performance?
c) A new processing machine is available for Center 1 that will increase the output to 1,600 pieces an hour although this will increase the overhead rate by $30.00 per hour. Merrifield will only install the new processing machine if it increases the multifactor productivity of Center 1 by at least 10%. Should Merrifield install the new processing machine? Justify your answer. Also, what is the percentage change in the multifactor productivity performance?
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Answer:
a) Calculate the multifactor productivity for each center.
Multifactor productivity for each center is as shown below with formulas for easy understanding
|
Center |
1 |
2 |
3 |
1 with New Machine |
|
Pieces Processed per Hr (a) |
1000 |
2000 |
3000 |
1500 |
|
No of workers/Hr (b) |
10 |
5 |
2 |
10 |
|
Hourly wage rate (c ) |
$ 5.50 |
$ 10.00 |
$ 12.00 |
$ 5.50 |
|
OH rate/Hr (d) |
$ 10.00 |
$ 25.00 |
$ 50.00 |
$ 10.00 |
|
Cost of Labor (e=b*c) |
$ 55.00 |
$ 50.00 |
$ 24.00 |
$ 55.00 |
|
OH cost (f=d) |
$ 10.00 |
$ 25.00 |
$ 50.00 |
$ 40.00 |
|
Total Cost (g=e+f) |
$ 65.00 |
$ 75.00 |
$ 74.00 |
$ 95.00 |
|
Multifactor productivity (h=a/g) |
15.38 |
26.67 |
40.54 |
15.79 |
|
Hourly wage rate with 10% increase |
$ 11.00 |
|||
|
Productivity with wage increase |
25.00 |
b) Workers in Center 2 are scheduled to receive a 10% pay raise next month. What will be the change in the multifactor productivity rate? Also, what is the percentage change in the multifactor productivity performance?
New wage cost for C2 = $10*1.10 = $11
Total Cost for C2 = $11*5 + 25 = $80
So New Multifactor Productivity = 2000/$80 = 25.00
So Multifactor Productivity has reduced from 26.67 to 25.00 as a result of wage hike.
%change is (26.67-25)/26.67 = 6.26%
c) A new processing machine is available for Center 1 that would increase the output to 1,500 pieces an hour at an additional overhead rate of $30.00 an hour. Merrifield will only install the new processing machine if it increases the multifactor productivity of Center 1 by at least 2.5%. Should Merrifield install the new processing machine? Justify your answer. Also, what is the percentage change in the multifactor productivity performance?
Wage cost for C1 = $5.50*10 = $55
OH/Hr for C1 = $10 +$30 = $40
So Total Cost for C1 = $55 + 40 = $95
So New Multifactor Productivity = 1500/$95 = 15.79
So Multifactor Productivity has increased from 15.38 to 15.79.
%change is (15.79-15.38)/15.38 = 2.67%
As %change in Productivity is 2.67% which is more than 2.5% expected, new machine should be installed.
