A company has introduced a processimprovement that reduces processing time for each unit, so thatoutput is increased by 25% with less material, but one additionalworker required. Under old process, five workers could produce60 units per hour. Labor costs are $12/hour, and materialinput was previously $16/unit. For the new process, materialis now$10/unit. Overhead is charged at 1.6 times direct laborcost. Finished units are sold for $31 each. What increase(or decrease) in productivity is associated with the process improvement? (a) Productivity with old system (b) Productivity with new system (c) % change (increase or decrease) in productivity

Adrianna Macias

Adrianna Macias

Answered question

2022-07-29

A company has introduced a processimprovement that reduces processing time for each unit, so thatoutput is increased by 25% with less material, but one additionalworker required. Under old process, five workers could produce60 units per hour. Labor costs are $12/hour, and materialinput was previously $16/unit. For the new process, materialis now$10/unit. Overhead is charged at 1.6 times direct laborcost. Finished units are sold for $31 each. What increase(or decrease) in productivity is associated with the process improvement?
(a) Productivity with old system
(b) Productivity with new system
(c) % change (increase or decrease) in productivity

Answer & Explanation

grocbyntza

grocbyntza

Beginner2022-07-30Added 25 answers

A) With the old system:
60 units x $31 per unit = $1860 gross
minus labor cost @ $60
minus overhead @ $96
minus material cost @ $960
Total @ $744 profit per hour
B) With new system
75 units x $31 per unit = $2325 gross
minus labor cost @ $72
minus overhead @ $115.20
minus material cost @ $960
Total @ $1177.80 profit per hour
C)($744/$1177.80) x 100 = 63% increase with newsystem

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