question for F2

Swetton Tyres Co manufactures a single product. Its work force consists of 10 employees, who worked 36 hours a week exclusive of lunch and tea breaks. The standard time required to make one unit of the product is two hours, but the current efficiency ratio being achieved is 80%. No overtime worked, and the work force is paid $4 per attendance hour.

Because of agreements with the workforce about work procedures, there is some unavoidable idle time due to bottlenecks in production. About four hours per week per person are lost in this way.

The company can sell all output it manufactured, and makes a profit of $20 per unit sold, deducting currently achievable costs of production but before deducting labour costs.

An incentive scheme is proposed whereby the work forece would be paid $5 per hour in exchange for agreeing to new work procedures that would reduce idle time per employee per week to two hours and also raise the efficiency ratio to 90%.

Evaluate the incentive scheme from the point of view of profitability

麻烦各位前辈了

in original procedure,
labour cost:
working labour cost:36*10*4=1440
idle time cost:4*10*4=160
the total labour cost is 1600
the revenue:
36/2*80%=14.4 units
14.4*10=144 units
144*20=2880
net profit:2880-1600=1280

in new procedure
labour cost;
workong labour cost:36*10*5=1800
idle labour cost:2*10*5=100
total cost is 1900
the renenue
36/2*90%=16.2 units
16.2*10=162 units
162*20=3240
net profit 3240-1900=1340
according to above analyisis,1340>1280 and the working efficiency ratio is riseed up 10%(90%-80%)
so the incentive scheme from the point of view of profitability is acceptable