Problem: After reading the background section to the problem below, answer the question of "which is the better decision as well as (a) and (b). Make sure to show ALL the work/steps to how the answers were derived.
Background: Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent product and excellent location, demand has increased by 25% in the last year. On far too many occasions, customers have not been able to purchase the bread of their choice. Because of the size of the store, no new ovens can be added. As a staff meeting, one employee suggested ways to load the ovens differently so that more loaves of bread can be baked at one time. This new process will require that the ovens be loaded by hand, requiring additional manpower. This is the only thing to be changed.
Note: The bakery makes 1,500 loaves per month with a labor productivity of 2.344 loaves per labor-hour and each worker works 160 hours per month.
Problem: After reading the information above, note that the pay will be $8 per hour for employees. Charles Lackey can also improve the yield by purchasing a new blender. The new blender will mean an increase in his investment. This added investment has a cost of $100 per month, but he will achieve the same output (an increase to 1,875) as the change in labor hours. Which is the better decision?
1. Show the productivity change, in loaves per dollar, with an increase in labor cost (from 640 to 800 hours).
2. Show the productivity change with only an increase in investment ($100 per month more).