Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent
ID: 399422 • Letter: C
Question
Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent product and excellent location, demand has increased by 45% 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 thing to be changed.The bakery currently makes 1 comma 600 loaves per month. The pay will be $8 per hour for employees and each employee works 160 hours per month. Charles Lackey can also improve the yield by purchasing a new blender. The new blender will mean an increase in his investment. This new blender will mean an increase in his costs of $100 per month, but he will achieve the same new output (an increase to 2 comma 320.00) as the change in labor hours. a) Current productivity for 640 work hours = 0.313 loaves/dollar (round your response to three decimal places). If Charles chooses to increase the number of work hours to 928 in order to employ the new oven loading technique, then the productivity is = 0.313 loaves/dollar (round your response to three decimal places). b) If Charles instead chooses to purchase a new blender (while holding labor constant at 640 hours at $8 per hour), then the productivity is = 0.444 loaves/dollar (round your response to three decimal places). c) By adding manpower, the percentage increase in productivity is 0% (enter your response as a percentage rounded to two decimal places and include a minus sign if necessary). By purchasing a new blender (while holding labor constant at 640 hours at $8 per hour), the percentage increase in productivity is 41.85% (enter your response as a percentage rounded to two decimal places and include a minus sign if necessary).
Explanation / Answer
Given values:
Current production = 1,600 loaves per month
Labor cost = $8 per hour
Increase in demand = 45%
Increased production = 1600 + (1600 x 45/100) = 2,320 loaves per month
Increased cost on purchasing a new blender = $100
Solution:
(A) Current productivity for 640 work hours is calculated as;
Current productivity = Total output / Total input in dollars
Current productivity = 1600 / (640 x $8)
Current productivity = 0.313 loaves/dollar
If the number of work hours are increased to 928 hours, new productivity is calculated as,
New productivity = Increased production / Total input in dollars
New productivity = 2320 / (928 x $8)
New productivity = 0.313 loaves/dollar
(B) If Charles purchases a new blender,
Productivity = Increased production / Total input in dollars
Productivity = 2320 / [(640 x $8) + $100]
Productivity = 0.444 loaves/dollar
(C) Percentage increase in productivity by adding a manpower is calculated as,
Percentage increase in productivity = [(New productivity - Old productivity) / Old productivity] x 100
Percentage increase in productivity = [(0.313 - 0.313) / 0.313] x 100
Percentage increase in productivity = 0%
(D) Percentage increase in productivity by purchasing a new blender is calculated as,
Percentage increase in productivity = [(New productivity - Old productivity) / Old productivity] x 100
Percentage increase in productivity = [(0.444 - 0.313) / 0.313] x 100
Percentage increase in productivity = 41.85%