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 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
$800
and a per loaf ingredient cost of
$0.35.
Part 2Current multifactor productivity for 640 work hours per month =
0.247 0.247
loaves/dollar (round your response to three decimal places).Part 3After increasing the number of work hours to
928
per
month,
the multifactor productivity =_______ loaves/dollar (round your response to three decimal places)
In the bustling city of Idaho Falls, Idaho, Charles Lackey operates a bakery that has become renowned for its exceptional products and strategic location. In recent times, the bakery has experienced a remarkable surge in demand, with an impressive 45% increase in customers over the past year. However, this success has brought along a significant challenge – customers often leave empty-handed due to the limited production capacity. Unfortunately, expanding the bakery’s capabilities by adding new ovens is not a feasible option due to space constraints. In response to this challenge, the bakery is considering a production process change: manually loading ovens to increase baking efficiency, which, in turn, necessitates additional manpower.
In this essay, we will explore the multifactor productivity of Charles Lackey’s bakery both before and after implementing this proposed change. Multifactor productivity is a critical metric that evaluates the efficiency of production processes by considering various inputs, including labor costs, utility costs, and ingredient costs, in relation to the output – in this case, the number of loaves produced.
Part 2: Current Multifactor Productivity
At present, the bakery produces 1,600 loaves of bread per month. The labor cost is $8 per hour, and the utility cost remains constant at $800 per month. Additionally, the ingredient cost per loaf is $0.35. To calculate the current multifactor productivity, we use the formula:
Multifactor Productivity = Output / Input
Output = 1,600 loaves per month Input = Labor Cost + Utility Cost + Ingredient Cost
Input = ($8/hour * 640 hours) + $800 + ($0.35/loaf * 1,600 loaves) Input = ($5,120) + $800 + $560 Input = $6,480
Current Multifactor Productivity = Output / Input Current Multifactor Productivity = 1,600 loaves / $6,480 ≈ 0.247 loaves/dollar
Thus, the current multifactor productivity is approximately 0.247 loaves per dollar.
Part 3: Multifactor Productivity After Increasing Work Hours
Considering an increase in work hours to 928 per month, we recalculate the multifactor productivity using the same formula:
Output remains 1,600 loaves per month.
Input = ($8/hour * 928 hours) + $800 + ($0.35/loaf * 1,600 loaves) Input = ($7,424) + $800 + $560 Input = $8,784
New Multifactor Productivity = Output / Input New Multifactor Productivity = 1,600 loaves / $8,784 ≈ 0.182 loaves/dollar
After increasing the number of work hours to 928 per month, the new multifactor productivity is approximately 0.182 loaves per dollar.
In conclusion, the analysis reveals that the multifactor productivity decreased from approximately 0.247 loaves per dollar to 0.182 loaves per dollar after the implementation of additional work hours. This decrease suggests that the increase in labor costs did not result in a proportional increase in output. To address this, Charles Lackey’s bakery may need to explore further optimizations or process improvements to efficiently meet the surging customer demand and maximize productivity. Optimizing production processes can help strike a balance between cost-efficiency and meeting customer expectations in this thriving bakery business.
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