The management team for Buddy's Bats is considering two locations for a plant to manufacture wooden baseball bats. The plant will produce 500 bats per week. The fixed setup costs for both plants are identical.
Plant A can produce 500 bats per week. The plant works one 8 hour shift per day with 5 staff. The plant works 5 days per week. The average wage is $25 per hour. The plant would use 600 units of maple and can buy maple at $5 per unit. Based on location and staffing levels, the plant would be assigned an overhead allocation of $1000 per week.
Plant B can produce 500 bats per week. The plant works one 8 hour shift per day with 7 staff. The plant works 5 days per week. The average wage is $20 per hour. The plant would use 625 units of maple to make the bats and can buy maple at $4 per unit. Based on location and staffing levels, the plant would be assigned an overhead allocation of $1,500 per week.
- a) What is the total cost of production for a week at each plant? What is the cost per bat? What is the labour cost per bat?
- b) Calculate and compare the labour productivity of the two options. Which one is better?
- c) Calculate and compare the multi-factor (labour, input and overhead) productivity of the two
- options. Which location is preferred?
- d) Give two other factors that the management team should consider before choosing a location
- (there may be more than 2 but only 2 are required).
- e) Plant A's manager believes he can increase labour productivity by 10% by increasing wages to
- $26 per hour. How many bats can they now make in a week? What is the total labour cost per bat and total cost per bat? How much have each improved?