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Asian Polymer Ltd. employees 40 workers @ $6.80/hour for a 35 hours week. Each unit of the product takes an average of 2 hours to produce. Each worker works 3 hours of overtime in a week which is paid at a rate is $9/hour.
The management is considering to invest in new machinery which will reduce the time required for each unit by 15 minutes. It is also expected that there will be no overtime required.
Required:
Question 1: What is the effect on total labor cost and the labor cost per unit after the introduction of machinery. Based on your calculation, recommend whether or not the management should invest in the new machinery.
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