compute the productivity profiles for each system does the computerized system impro 649584

PRODUCTIVITY AND QUALITY, PROSPECTIVE ANALYSIS

Walnut Company is considering the acquisition of a computerized manufacturing system. The new system has a built in quality function that increases the control over product specifications. An alarm sounds whenever the product falls outside the programmed specifications. An operator can then make some adjustments on the spot to restore the desired product quality. The system is expected to decrease the number of units scrapped because of poor quality. The system is also expected to decrease the amount of labor inputs needed. The production manager is pushing for the acquisition because he believes that productivity will be greatly enhanced—particularly when it comes to labor and material inputs. Output and input data follow. The data for the computerized system are projections.

	Current System	Computerized System
Output (units)	20,000	20,000
Output selling price	$40	$40
Input quantities:
Materials	80,000	70,000
Labor	40,000	30,000
Capital (dollars)	$40,000	$200,000
Energy	20,000	50,000
Input prices:
Materials	$4.00	$4.00
Labor	$9.00	$9.00
Capital (percent)	10.00%	10.00%
Energy	$2.00	$2.50

Required:

1. Compute the partial operational ratios for materials and labor under each alternative. Is the production manager right in thinking that materials and labor productivity increase with the automated system?

2. Compute the productivity profiles for each system. Does the computerized system improve productivity?

3. Determine the amount by which profits will change if the computerized system is adopted. Are the trade offs among the inputs favorable? Comment on the system’s ability to improve productivity.