Ricky is the operations manager of a company making leather soccer balls for children; and with recent
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Question:
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 $18 per kg of materials While for the capital expense, it is at 0.9% per month of capital investment
- Calculate the productivity percentage change for each category in the table below. Some answers have been shown for your reference, Please make sure you are having all figures compared to the same unit of measure
| Year 2018 | Year 2019 | Cost or Rate | Monthly Cost 2018 | Monthly Cost 2019 | Productivity Change (%) |
Unit Produced | 500,000 | 500,000 | ||||
Labour (hours) | 90,000 | 81,000 | 40 | 300000 | | |
Capital Invested ($) | 10,000,000 | 11,000,000 | 0.9% | | 99000 | |
Materials (Ton) | 240 | 228 | 18 | 360000 | | |
Sub-total | | | |
- Will Ricky get his productivity improvement bonus for Year 2019? Why?
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.
- What would you suggest the boss to make the decision based on the cost?
- What other factors and risks the boss should consider beyond the cost implications? Please discuss three of them.
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