MZK, Inc. is a violin manufacturing shop produces low-cost, highly durable violins for beginners. Typically, out of the 155 violins that begin production each month, only 60 percent are considered good enough to sell. The other 40 percent are scrapped due to quality problems that are identified after they have completed the production process. Each violin sells for $176. Because some of the production process is automated, each violin only requires 8 labor hours. Each employee works an average 146 hours per month. Labor is paid at $8/hour, materials cost is $30/ violin, and overhead is $3,000.
a. Calculate the labor and multifactor productivity ratios.
b. After some study, the operations manager Moussa recommends three options to improve the company’s multifactor productivity: (1) increase the sales price by 15 percent, (2) improve quality so that only 15 percent are defective, or (3) reduce labor, material, and overhead costs by 15 percent. Which option has the greatest impact on the multifactor productivity measure?
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