Airphone, Inc., manufactures cellular telephones at a processing cost of $47 per unit. The company produces an average of 250 phones per week although there are 16% defective phones. Each phone takes one hour to make. At this time, none of the defective phones can be reworked but can be sold as is. Each good phone is sold for $125. The defective phones are sold for parts that provide $12 in revenue per phone.
The output is defined as the revenue that the company receives.
a) What is the company's labor hours productivity and what is its multifactor productivity?
b) Suppose that the company is now able to rework half of the defective phones. It takes an additional 0.5 hours to rework a defective phone. The cost of reworking a defective phone is $16. After it has started reworking the defective phones that can be reworked, what is the company''s labor hours productivity and what is its multifactor productivity? The remaining defective phones that cannot be reworked can still be sold for parts that provides $12 in revenue per phone.
c) What is the percent change in the multifactor productivity if the initial process used is the one without the rework capability and is then replaced by the process with the rework capability?