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# Calculating Multifactor Productivity

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CD players are produced on an automated assembly line process. The standard cost of CD players is \$150 per unit (labor \$30, materials \$70 and overhead \$50) the sales price is \$300 per unit.

a. To achieve a 10 percent multifactor productivity improvement by reducing materials cost only, by what percentage must these costs be reduced?
b. To achieve a 10 percent multifactor productivity improvement by reducing labor cost only, by what percentage must these costs be reduced?
c. To achieve a 10 percent multifactor productivity improvement by reducing overhead cost only, by what percentage must these costs be reduced?

#### Solution Preview

a. To achieve a 10 percent multifactor productivity improvement by reducing materials cost only, by what percentage must these costs be reduced?

Cost of labor per unit=L=\$30
Cost of material per unit=M=\$70
Output value per unit=P=\$300
Multifactor productivity=MFP=P/(L+M+OH)=300/(30+70+50)=2

Desired level of MFP=2*(1+10%)=2.2
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#### Solution Summary

Solution calculates the changes needed in material, labor and overhead costs to achieve a given level of improvement in multifactor productivity.

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