A garden tools manufacturing industry recently purchased and installed few new equipment to reduce the labor hours of the jobs needed to produce the garden tools at various production units. Prior to buying the new equipment, the company used to employ 8 workers in unit that used to produce an average of 32 shovels per hour. Workers receive $12 per hour and overhead cost was $40 per hour.
With the new equipment, it was possible to transfer one of the workers to another production unit, and the overhead cost increased by $10 per hour, while output increased by 8 shovels per hour. Compute the following:
i. Compute unit production cost before and after purchasing the new equipment.
ii. Compute the multifactor productivity before and after purchasing the new equipment. Use labor cost and overhead cost to derive multifactor productivity.
iii. Compute and comment on the change of labor productivity and production improvement before and after purchasing the new equipment.
Comment on these changes in productivity according to the two measures (before and after purchasing the new equipment).
Is it worth to buy new equipment considering the productivity improvement and investment.