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The H&S Motor Company produces small motors at a production cost of $30 per unit. Defective motors can be reworked at a cost of $12 each. The company produces 100 motors per day and averages 80 percent good quality motors. Based on past experience, 50% of the defective motors can be reworked prior to shipping to customers. These are also considered good motors. A good motor can be sold for $100 while a defective motor can be scrapped and sold for $15. Income consists of both the revenue from the sold motors and the scrapped motors.
a) Using the number of good motors shipped as the measure of output and the cost of production as the input, what is the company's productivity if no defective motors are reworked?
b) Suppose that the company now uses the total income as the output measure and the cost of production as the input. What is the company's productivity if no defective motors are reworked?
c) Now suppose the company reworks the defective motors that can be reworked. Using the number of good motors shipped as the measure of output and the cost of production as the input, what is the company's productivity now?
d) What is the percent change in productivity comparing the productivity in c) to the productivity in a)?
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