Problem: Cindy Jo's Hair Salon is concerned about their rising costs of supplies, energy and labor, so they are considering investing in better equipment, which hopefully will reduce the time required to perform most hairstyles as well as resulting in better perceived quality by their customers. They predict that the added investment will increase output levels as well as reduce energy costs, since some of the new equipment (hair dryers) use less electricity. Using the following information, determine the current and expected single-factor and total productivity measures. What is the percentage change in total productivity? What other items should be considered before making this capital investment? Do you think the increase in output will overcome the capital costs?
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Inputs and Outputs
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Current (This Year)
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Expected (Next Year)
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Hairstyles per week
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250
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300
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Labor costs per week
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$960
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$1,010
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Energy costs per week
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$400
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$350
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Material costs per week
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$300
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$325
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Capital costs per week
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$0
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$12,000
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