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In: Accounting

Profit-Linked Productivity Measurement In 20x2, Choctaw Company implements a new process affecting labor and materials. Choctaw...

  1. Profit-Linked Productivity Measurement

    In 20x2, Choctaw Company implements a new process affecting labor and materials.

    Choctaw Company provides the following information so that total productivity can be valued:

    20x1 20x2
    Number of units produced 540,000 450,000
    Labor hours used 108,000 112,500
    Materials used (lbs.) 2,160,000 1,500,000
    Unit selling price $20 $22
    Wages per labor hour $12 $14
    Cost per pound of material $3.40 $3.50

    Required:

    1. Calculate the cost of inputs in 20x2, assuming no productivity change from 20x1 to 20x2.

    Cost of labor $
    Cost of materials   
    Total PQ cost $

    2. Calculate the actual cost of inputs for 20x2.

    Cost of labor $
    Cost of materials   
    Total current cost $

    What is the net value of the productivity changes?
    $

    How much profit change is attributable to each input's productivity change? If an item is negative, use a minus (-) sign to indicate.

    Labor productivity change $
    Materials productivity change $

    3. What if a manager wants to know how much of the total profit change from 20x1 to 20x2 is attributable to price recovery? Calculate the total profit change.
    $

    Calculate the price-recovery component.
    $

Solutions

Expert Solution

Requirement-1
$
Cost of Labour (450000 unit X 0.20 Hrs/Unit X $12)                 10,80,000
Cost of Material (450000 Unit X 4 lbs/unitX $3.40)                 61,20,000
Total PQ Cost                 72,00,000
Requirement-2
$
Cost of Labour (112500X $14)                 15,75,000
Cost of Material (1500000X 3.50)                 52,50,000
Total Curent Cost                 68,25,000
Requiremet nt 2(b)
Labour Productivity Chage
((450000 Unit X 0.20 Hrs /Unit)-112500) )X $12
                 -2,70,000
Material Productivity Change
((450000 UnitX 4 lbs/Unit)-1500000)X $3.40
                10,20,000
Net Value of Productivity Change                   7,50,000
Requirement-3
$
Labour Price Recovery Change (12-$14)X 112500                  -2,25,000
Material Price Recovery Change ($3.40-$3.50)X 1500000                  -1,50,000
Net Price Recovery Change                  -3,75,000
Working Note-1
Std. Labour Hour / Unit=108000/540000=0.20Hr /Unit
Std Material/Unit=21,60,000/5,40,000=4 lbs/Unt

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