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Comparison of Labor and Multi-Factor Productivity of Two Potential Plant Locations

Labor Productivity Analysis

The management team for Associated Industries is considering two locations for a plant to build widgets. The plant will produce 1,000 widgets per week. The fixed setup costs for both plants are identical.
Plant A can produce 1,000 widgets per week with one 8 hour shift per day of 10 staff. The plant works 5 days per week. The average wage is $20 per hour. The plant would use 1,000 kilos of steel to make the widgets and can buy steel at $2.5 per kilo. Based on location and staffing levels, the plant would be assigned an overhead allocation of $1200 per week.
Plant B can produce 1,000 widgets per week with one 8 hour shift per day of 15 staff. The plant works 5 days per week. The average wage is $14 per hour. The plant would use 900 kilos of steel to make the widgets and can buy steel at $1 per kilo. Based on location and staffing levels, the plant would be assigned an overhead allocation of $1,500 per week.
a.Calculate and compare the labour productivity of the two options. Which one has better labour productivity?
b.Calculate and compare the multi-factor (labour, input and overhead) productivity of the two options. Which potential location is preferred from a productivity perspective?
c.Give three other factors that the management team should consider before choosing a location (there may be more than 3 but only 3 are required).

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