Assignment # 2

Question 1
An operation has a 10% scrap rate. As a result, only 82 good
pieces per hour are produced. What is the potential increase in
labor productivity that could be achieved by eliminating the
scrap?
A> Good pieces = 82/hr
Scrap Rate = 10%
90% x (production + scrap) = 82 pcs/hr
0.9*(82+s)=82
82+s=91
s=9 pcs/hr
Increase in production is 9/91=0.0989
i.e 9.89% increase
Question 2
An office has a staff of three, each working eight hours per day.
The total payroll cost is $480 /day and the overhead costs of
$300 per day. This office processes land titles and daily they
complete seven titles each day. The office recently purchased a
computerized system that will allow them to process 12 titles
each day. Daily the hours will and pay will be the same
however the overhead costs will increase to $600 per day.
Calculate the labour productivity with the old and new
systems? As a % how much has the labour productivity
grown?

 Calculate the multifactor productivity with the old and new

systems. Again as % how much has the multifactor
productivity grown?
Which measure is more appropriate for the office and why?
A> 1) Staff of 3 works 8 hrs/day
Payroll cost = 480$/day

7 titles/day
Overhead = 300$/day

Computerized system = 12 titles/day

Overhead = 600$/d

Old Labor productivity = 7 titles/day = 0.3 titles/labor-hr

24 labor hrs
New labor productivity = 12 titles/day = 0.5 titles/labr-hr
24 labor hrs
Labor productivity has grown = 67%
2) Old multifactor productivity = 7 titles/day = 0.009 titles/$
(480$ + 300$)
New multifactor productivity = 12 titles/day = 0.01 titles/$
(480$+600$)
Multifactor productivity has grown = 11%
I think measuring growth as per the labor productivity is better
since it shows a significant rate and can be a better tool to
evaluate the performance levels as well.

Question 3
Calculate the utilization and efficiency with these situations:
A bank loan officer processes an average of 7 loans per
day. They work an 8 hrs shift but take 1 hour off for
lunch. The effective capacity is 8 loans per day
A service repair team services an average of 4 furnaces a
day. The team is idle an average of 2 hours in an eight
shift. The effective capacity is 5 furnaces a day
A> 1) Utilization = Actual Output x (100%)
Design Output
= 7 loans x (100)%
8 loans
= 87.5%
Efficiency = Actual time worked
x (100%)
Available time worked
= 7 hrs x (100)%
8 hrs
= 87.5%
2) Utilization = Actual Output x (100%)
Design Output
= 4 x (100%)
5
= 80%
Efficiency = Actual time worked
x (100%)
Available time worked
= 6 x (100%)
8
= 75%

Question 4
The selling price for a type of felt-tip pen is $1 per pen. Fixed
cost of the operation is $25000 per month and variable cost is 50
cents per pen.
Find the break even quantity
How many pens must be sold to obtain a monthly profit of
$15000?
A> 1) Break Even Quantity: Fixed Costs/(Price Per unitVariable costs per unit)
BEQ=25,000/(1-0.5)
BEQ= 50, 000 pens
2) Profit = Volume(Selling Price-Variable Cost)-Fixed Cost
15,000 = x (1-0.5) 25000
x = 70,000 pens
70,000 pens have to be sold to obtain monthly profit of
15,000$.
Question 5
A manager must decide which type of machine to buy: A, B or
C. Machine fixed costs are:
Machine
A
B
C

Cost/year
$40,000
$30,000
$80,000

The company makes 4 products. Product forecasts and unit

processing times on each machines are as follows:
Product
1
2
3
4

Forecasts
16000
12000
6000
30000

Processing time / unit (mins)

A
B
C
3
4
2
4
4
3
5
6
4
2
2
1

How many machines of each type would be needed to meet

annual demand for all the products?
Based on annual fixed costs, which type of machine will
cost the least to satisfy the demand? (machines operate 10
hours a day, 250 days a year)
A>
Product
A
B
C
1
48,000
64,000
32,000
2
48,000
48,000
36,000
3
30,000
36,000
24,000
4
60,000
60,000
30,000
TOTAL
186,000
208,000
122,000
Processing time available by the machines: 10 x 250 x 60 =
150,000
Number of machines needed Product A = 186,000/ 150,000 = 1.2 machine needed
Product B = 208,000/ 150,000 = 1.4 machine needed
Product C = 122,000/ 150,000 = 0.8 machine needed

Cost per machine A= 2 x 40,000 = 80,000

B= 2 x 30,000 = 60,000
C= 1 x 80,000 = 80,000
We will use machine 2 because it has the lowest cost.