Gibson Products produces cast bronze valves for use in offshore oil platforms. Currently, Gibson produces 1600 valves per day. The 20 workers at Gibson work from 7 a. m. until 4 p. m., with 30 minutes off for lunch and a 15-minute break during the morning work session and another at the afternoon work session. Gibson is in a competitive industry, and needs to increase productivity to stay competitive. They feel that a 20 percent increase is needed. Gibson's management believes that the 20 percent increase will not be possible without a change in working conditions, so they change work hours. The new schedule calls on workers to work from 7:30 a. m. until 4:30 p. m., during which workers can take one hour off at any time of their choosing. Obviously, the number of paid hours is the same as before, but production increases, perhaps because workers are given a bit more control over their workday. After this change, valve production increased to 2000 units per day.
Calculate labor productivity for the initial situation
Calculate labor productivity for the hypothetical 25 percent increase, and its impact on output.
What is the productivity after the change in work rules?

Question Completion:

It is assumed that the hypothetical increase in labor productivity remains 20% as in the original question.

Gibson Products

1. The Labor Productivity for  the initial situation = 10

2. The Labor Productivity for the hypothetical 20% increase = 12

3. With the 20% increase in labor productivity, the output increased from 1,600 to 1,920 (1,600 * 1.2).

4. The Labor Productivity after the change in work rules = 12.5

Explanation:

a) Data and Calculations:

Current production = 1,600 valves per day

Number of workers = 20

Schedule of work each day = 7 a.m. to 4 p.m. (9 hours)

Break Time = 1 hour (30 + 15 + 15 minutes)

Total Productivity Time per day = 8 hours (9 - 1) * 20 = 160

Current productivity = Daily output/Daily Labor input

= 1,600/160 = 10

Hypothetical increase in productivity = 10 * 20% = 2

Hypothetical productivity = 12 (10 + 2)

Output with hypothetical productivity increase = 1,920 (1,600 * 1.2)

New Schedule of work = 7:30 a.m. until 4:30 p.m. (9 hours)

Break Time = 1 hour

Total Productivity Time per day = 8 hours (9 - 1) * 20 = 160

New output after the change in work rules = 2,000

Labor productivity for the initial situation = 1,600/160 = 10

Labor productivity for the hypothetical 20% increase = 12

Labor productivity after the change in work rules = 12.5 (2,000/160)