Question 1 (Total 20 marks)

Ricky is the operations manager of a company making leather soccer balls for children; and with recent increase in the costs, he wishes to look into the productivity of his company. He would like to know if his company is having a 5% increase in productivity in order to be qualified for a bonus. Please see the annual data below:

	Year 2018	Year 2019
Unit Produced	500,000	500,000
Labour (hours)	90,000	81,000
Capital Invested ($)	10,000,000	11,000,000
Materials (Ton)	240	228

The details of the various cost items are: S40 per labour hour and $18 per kg of materials While for the capital expense, it is at 0.9% per month of capital investment

1. Calculate the productivity percentage change for each category in the table below (9 marks). Some answers have been shown for your reference, Please make sure you are having all figures compared to the same unit of measure

	Year 2018	Year 2019	Cost or Rate	Monthly Cost 2018	Monthly Cost 2019	Productivity Change (%)
Unit Produced	500,000	500,000
Labour (hours)	90,000	81,000	40	300000
Capital Invested ($)	10,000,000	11,000,000	0.9%		99000
Materials (Ton)	240	228	18	360000
Sub-total

2. Will Ricky get his productivity improvement bonus for Year 2019? Why? (2 marks)

The boss of the company is now considering to outsource the operations to a third party who offers a product transfer cost of $16 per unit that covers the materials, labour and capital costs.

3. What would you suggest the boss to make the decision based on the cost? (3 marks)

4. What other factors and risks the boss should consider beyond the cost implications? Please discuss three of them. (6 marks )