Step 1: Calculate initial labour productivity.
Labour Productivity = Total Output / Number of Employees
= 8,000 chairs / 50 workers
= 160 chairs per worker per month.
Step 2: Calculate initial total labour cost and unit labour cost.
Total Labour Cost = Number of workers × Hours per worker × Wage rate
= 50 workers × 160 hours × $15/hour = $120,000 per month.
Unit Labour Cost = Total Labour Cost / Total Output
= $120,000 / 8,000 chairs = $15.00 per chair.
Step 3: Calculate new labour productivity.
New Labour Productivity = New Total Output / Number of Employees
= 9,600 chairs / 50 workers
= 192 chairs per worker per month.
Step 4: Calculate new total labour cost and unit labour cost.
New Total Labour Cost = Initial Labour Cost + Bonus Cost
= 120,000+10,000 = $130,000 per month.
New Unit Labour Cost = New Total Labour Cost / New Total Output
= $130,000 / 9,600 chairs = $13.54 per chair (rounded to 2 d.p.).
Conclusion:
The group bonus scheme, an extrinsic motivational tool, increased labour productivity by 20% (from 160 to 192 chairs per worker). Despite increasing total labour costs by $10,000, the increased efficiency lowered the unit labour cost from $15.00 to $13.54. This shows that a well-implemented motivational strategy can improve competitiveness by reducing the cost of production per unit.