Single-Factor and Multifactor Productivity Exercises

Format: Type your responses under the corresponding question. Handwriting will not be graded. No need to use advanced equation editing options, an answer such as input/output = 10 / 2 = 5 work hours per component is ok.

1. A structural steel fabrication workshop employs 20 workers, each working eight hours per day. On average, 15 metric tons of steel are produced daily. The production process includes plasma and oxyfuel cutting, welding, drilling, punching, sandblasting, and painting. The payroll cost per worker is $410 per day. Also, there are $1,200 of daily overhead expenses on the fabrication shop.

1. Compute the labor productivity in production per hour of work. Also, how many hours are required to produce one metric Ton of steel?

2. Compute the multifactor productivity in input/output, using dollar costs.

The steel shop is considering the purchase of a new welding robot for $220,000. The fabricator would need to resort to credit in order to make the purchase. The credit would need to be returned through the 5-year estimated return on investment (ROI). The robot is expected to increase production by 1 Ton of steel per day, although the daily overhead would also increase to $1,400 to cover financing costs.

3. Compute the new labor productivity in input/output. Also, compute the new multifactor productivity in input/output.

4. Based on labor productivity alone, should the fabricator proceed with the purchase of the welding machine? Quantitatively justify your answer.

5. Think outside the box. Regardless of your answer to the previous question, why would the fabricator may decide not to purchase the welding machine? In other words, would you consider any factor(s) of risk if you were to make such a decision? If so, what? Justify your answer.

2. Construction Pallets, Inc. produces wood pallets, which the company sells to construction materials and parts manufacturers. With the current technology, the company produces 120 pallets from 50 timber units a day. Each pallet requires 2 hours to be manufactured. Each worker costs $12 per hour, and each timber unit costs $10. Construction Pallets is evaluating whether or not recruiting a Computer-Aided Design and Computer-Aided Machine (CAD/CAM) expert, a hire that promises to increase daily production, by reducing timber waste, to 132 pallets from the same 50 timber units. The CAD/CAM expert, if hired, would cost $18 per hour and work 8 hours per day.

1. Estimate the labor productivity for the current process

2. Estimate the labor productivity with the CAD/CAM expert

3. For the current process, estimate the multifactor productivity with dollars (timber material and labor).

4. How would the multifactor productivity change if the CAD/CAM expert is recruited?