Cost of Training Program to Upgrade Workers' Productivity. Pocahontas
Products, Inc. employs 40 machine operators for the same type of work. The
average output per employee is 48 good units per hour with two rejects per hour per worker. The last efficiency report shows 50% of the operators averaged only 40 good units an hour with three rejects, while the other 50% averaged 55 good units per hour with one reject. The piece rate is $.15 each for good units. Repairing rejects costs $.25 each.
The job is a one-man, one-machine operation. The depreciation cost of each
machine is $1,000 a year, and the variable cost of operating one machine is $.20 an hour. Fixed factory overhead other than depreciation is $4 per machine hour. The plant operates 2,000 hours a year, or 250 days.
Required: Assuming that product demand increases, the amount the com- pany can afford to pay for a training program which would upgrade the 20 poorer workers to equal the average production of the better operators.