Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent
ID: 395537 • Letter: C
Question
Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent product and excellent location, demand has increased by 25% 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 baked 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 1,600 loaves per month. Employees are paid $8 per hour. In addition to the labor cost, Charles also has a constant utility cost per month of $650 and a per loaf ingredient cost of $0.40.
Current multifactor productivity for 640 work hours per month = ___ loaves/dollar (round your response to three decimal places).
After increasing the number of work hours to 800 per month, the multifactor productivity =____ loaves/dollar (round your response to three decimal places).
Explanation / Answer
Multifactor productivity (MFP) = Number of loafs/(Labor cost + Utility cost + Material cost)
Labor cost = Number of work hours*Labor cost per hour
Utility cost is per month
Material cost = Number of loafs*Loaf ingredient cost
MFP for existing 640 work hours = 1600/(640*8 + 650 + 1600*0.4) = 0.250
MFP for 800 work hours = (1600*(1+25%))/(800*8 + 650 + 1600*(1+25%)*0.4) = 0.255