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employees in a factory are paid at a basic hourly rate of $5.5’0 for a 35 hour week. Overtime is paid at a rate of $7.50 per hour. It takes one employee 3 hours to produce one unit of the sole product. On average employees work 4 hours of overtime in a week.
Management are considering automating part of the production process which will reduce unit production time by 30 minutes. It is expected that overtime will not be needed under this system.
What would be the effect of the new system on the per unit labour cost?
a) $3.37 increase
b) $2.31 decrease
c) $3.37 decrease
d) $2.31 increaseYou must surely have an answer to this in the same book in which you found the question, so ask about whatever it is in the workings that you are not clear about and then I will explain.
They currently produce 13 units per employee at a total cost of $222.50. So $17.12 per unit.
In future they will produce 14 units per employee at a total cost of $192.50. So $13.75.
There is a decrease in cost of the difference.
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