Mack's Guitar fabrication shop produces low-cost highly durable guitars for beginners. Typically, out of the 100 guitars that begin production each month, only 80% are considered good enough to sell. The other 20 % are scrapped due to quality problems that are identified after they have competed production process. Each guitar sells for $250. Because some of the production process is automated, each guitar only requires 10 labor hours. Each employee works an average of 160 hours per month labor is paid at $10 an hour, materials cost is $40/guitar, and over is $4,000.
a. Calculate the labor and multifactor productivity ratios
b. After some study, the operations manager Darren Funk recommends three options, to improve the company's multifactor productivity. 1. Increase sales price by 10 % 2. Improve quality so that only 10 % are defective or 3 reduce labor, material and overhead costs by 10 %. Which option has the greatest impact on the multifactor productivity measure?