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Fun toys international manufactures swimming rings for kids. The company produces 1000 swimming rings per day. The company uses 50 workers, who works for 8 hours per day and the workers receive $12.5 per hour. The company uses 20000 pounds of raw material each day at a cost of $1.25 per pound. Energy cost for production per day is $5000. Overhead is charged daily at the rate of 1500 plus 70% of the direct labor cost. Now the company has decided to purchase new energy efficient equipment, which will decrease the energy cost per day by $2000 and also the company will be able to transfer 7 workers to another production line as the new equipment requires less labor content.
a) Compute labor productivity per labor-hour for both old and new equipment. What increase in labor productivity is associated with the process improvement.
b) Compute multi factor productivity for both old and new equipment. What increase in multi factor productivity is associated with the process improvement.
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