Problem: A furniture manufacturing company makes chairs and earns a revenue of 7000$ (by making 100 chairs and each chair being sold for $70) and the company has the following costs:
- Direct materials $700
- Direct labor $300
- Overhead $500
a) Calculate the overall productivity of the company.
b) If the company decides to improve productivity through materials costs reduction only, by how much should the material costs be reduced to achieve a 10 percent increase in total productivity?
c) If the company decides to improve productivity through direct labor cost reduction only, by how much should the direct labor costs be reduced to achieve a 10 percent increase in total productivity?
d) What will the new overall productivity be if the company decides to make 135 chairs per week? You need to compute the new overall productivity by changing the output in part a.