Charles lackey operates a bakery in Idaho Falls Because of i

Charles lackey operates a bakery in Idaho, Falls Because of its excellent product location, demand has increased by 35% in the last year. On far too many occasions, customers have not been able to purchase the bread of their choice. Because of the size of the store, no new ovens can be added. At a staff meeting, one employee suggested ways to load the ovens differently so that more loaves of bread can be backed at one time. this new process will require that the ovens be loaded by hand, requiring additional manpower. This is the only production change that will be made in order to meet the increased demand. The bakery currently makes 1,800 loaves per month. Employees are paid $8.00 per hour. In addition to the labor cost, Charles has a constant utility cost per month of $800 and a per loaf ingredient cost of $0.35.

current multifactor productivity for 640 work hours per month= (3 decimal places all answers)

after increasing the number of work hours to 864 per month the multifactor productivity =

the percentage increase in productivity =

Solution

Current

Labor = 640 x $ 8 = $ 5,120

Material = 1,800 x $ 0.35 = $ 630

Overhead = $ 800

Total Input Cost = $ 5,120 + $ 630 + $ 800 = $ 6,550

Multifactor Productivity = Output / Input cost

= 1,800 / $ 6,550

= 0.275 per dollar of Input

Proposed

New output = 1,800 x 1.35 = 2,430

Labor = 864 x $ 8 = $ 6,912

Material = 2,430 x $ 0.35 = $ 850.50

Overhead = $ 800

Total Input Cost = $ 6,912 + $ 850.50 + $ 800

= $ 8,562.50

Multifactor Productivity = Output / Input cost

= 2,430 / $ 8,562.50

= 0.284

Percentage increase in productivity

= ( 0.284 - 0.275 ) / 0.275

= 3.273 %