Reference no: EM132320820

A widget manufacturer is considering a location in Ontario and another in Alabama. Either plant will produce 1,000 widgets per week. The fixed setup costs for both plants are identical.  The Ontario plant can produce 1,000 widgets per week.  The plant works one 8 hour shift per day with 5 staff. The plant works 5 days per week. The average wage is $23 per hour. The plant would use 1,200 units of inputs and can buy inputs at $7 per unit.  Based on location and staffing levels, the plant would be assigned an overhead allocation of $1000 per week. 

The Alabama plant can produce 1,000 widgets per week.  The plant works one 8 hour shift per day with 7 staff. The plant works 5 days per week. The average wage is $19 per hour. The plant would use 1,250 units of input to make the widgets and can buy inputs at $6.50 per unit. Based on location and staffing levels, the plant would be assigned an overhead allocation of $1,500 per week. 

a) What is the total cost of production for a week at each plant? What is the cost per widget?  What is the labour cost per widget?

b) Calculate and compare the labour productivity of the two options. Which one is better?

c) Calculate and compare the multi-factor (labour, input and overhead) productivity of the two options. Which location is preferred?

d) Give two other factors that the management team should consider before choosing a location (there may be more than 2 but only 2 are required).

e) The Ontario plant's manager believes he can increase labour productivity per hour by 10% by increasing wages to $25 per hour. How many widgets can they now make in a week? What is the total labour cost per widget and total cost per widget? How much have each improved