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 percent are considered good enough to sell. The other 20 percent are scrapped due to quality problems that are identified after they have completed the 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 $99 per hour, materials cost is $42 per guitar, and overhead is $4200.
a. Calculate the labor and multofactor productivity ratios
b. After some study, the operation manager Darren Funk recommends three options to improve the company's multifactor productivity: 1. increase the sales price by 10%, 2. Improve quality so that only 10 percent are defective, or 3. reduce labor, material, and overhead costs by 10 percent. Which option has the greatest impact on the multifactor productivity measure?