Question

In a manufacturing process, five workers could produce 60 units per hour. Labor costs are $15/hour, and material cost is $20/unit. Overhead is charged at 1.5 times direct labor cost. Finished units sell for $40 each. What is the multifactor productivity associated with the process?

Answer 1

Answer:

1.729

Explanation:

Given;

Number of units produced by 5 workers = 60 per hour

Labor cost = $15/hour

Material cost = $20/unit

Overhead charged = 1.5 times direct direct labor cost

or

Overhead charged = $22.5/hour

Selling cost of the finished units = $40/unit

Now,

the total labor cost = Direct labor × Total number of labor = $15 × 5 = $75

Total material cost = Number of units × Material cost per unit

Total material cost = 60 × $20 = $1,200

Total overhead = 1.5 × the total labor cost  = 1.5 × $75 = $112.5

Therefore,

the total cost of production = $75 + $1,200 + $112.50 = $1,387.5

Total revenue = Number of units × Selling cost = 60 × $40 = $2,400

Thus,

the multifactor productivity = $\frac{\textup{Total revenue}}{\textup{Total cost of production}}$

or

the multifactor productivity =  $\frac{2400}{1387.5}$

or

the multifactor productivity = 1.729