Table 1.2
The Abco Company manufactures electrical assemblies. The current process uses 10 workers and produces 200 units per hour. You are considering changing the process with new assembly methods that increase output to 300 units per hour, but will require 14 workers. Particulars are as follows:

Workers are paid at a rate of $10 per hour, and overhead is charged at 140% (or 1.4 times) labor costs. Finished switches sell for $20 / unit.
-Use the information provided in Table 1.2. Based on your productivity calculations, what decision should you make?
A) implement the new process
B) stay with the current process
C) need more information to make a decision
D) Either process is acceptable (since the multi-factor productivities are the same).

Question

Table 1.2
The Abco Company manufactures electrical assemblies. The current process uses 10 workers and produces 200 units per hour. You are considering changing the process with new assembly methods that increase output to 300 units per hour, but will require 14 workers. Particulars are as follows:
  
Workers are paid at a rate of $10 per hour, and overhead is charged at 140% (or 1.4 times) labor costs. Finished switches sell for $20 / unit.
-Use the information provided in Table 1.2. Based on your productivity calculations, what decision should you make?
A) implement the new process 
B) stay with the current process 
C) need more information to make a decision 
D) Either process is acceptable (since the multi-factor productivities are the same).

Quizplus · Accepted Answer

The multi-factor productivity (MFP) for the current process is 2. 
MFP for the new process = output / (labor + overhead) cost 
= (300 units/hour * $20/unit) / [(14 workers * $10/hour) + 1.4 *(14 workers * $10/hour)] 
=  1.74 
Since the MFP for the new process is higher than the MFP for the current process, it is more productive and efficient. Therefore, the best choice is to implement the new process.

Table 1.2 The Abco Company Manufactures Electrical Assemblies. the Current Process Uses