Problem: Mabel's Ceramics spent $3000 on a new kiln last year, in the belief that it would cut energy usage 25% over the old kiln. This kiln is an oven that turns "greenware" into finished pottery. Mabel is concerned that the new kiln requires extra labor hours for its operation. Mabel wants to check the energy savings of the new oven, and also to look over other measures of their productivity to see if the change really was beneficial. Mabel has the following data to work with:
Last Year This Year
Production (finished units) 4000 4000
Labor (hrs) 350 375
Capital ($) 15000 18000
Energy (kWh) 3000 2600
Also, suppose that the average labor cost is $12 per hour and cost of energy is $0.40 per kwh.
Question 1: Were the modifications beneficial? (Compute labor, energy, and capital productivity for the two years and compare.)
Question 2: Compute the improvement in multi-factor productivity.
Question 3: By what percentage labor cost must be reduced this year to maintain the same multifactor productivity by reducing labor hours only?