Labour cost

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 increase