Thomas Cope, located in Bolton, England, is a manufacturer of stainless steel exhaust hoods used in industrial kitchens. The firm works 20 days a month, and each employee works an average of 8 hours per day. To keep costs down, Thomas Cope employs labor with limited experience. This causes quality issues, and every day 10 percent of the production is scrapped. Each exhaust hood sells for £125. Labor is paid at £15/hour, materials cost per exhaust hood is £40, and overhead cost is £3,500. The firm currently has 250 employees.
a. Calculate the labor and multifactor productivity ratios.
b. To improve the firm’s multifactor productivity, Thomas Cope has three choices 1) increase 20 percent sales by reducing the sales price by 10 percent, 2) improve quality by hiring skilled labor at £20 per hour resulting in no defects, or 3) reduce material costs by 10 percent. Which option has the greatest impact on the multifactor productivity measure?