Question

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.
   $

Answer 1

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