Question

In the fourth quarter of last year, Colditz Company embarked on a major effort to improve productivity. It redesigned products, reengineered manufacturing processes, and offered productivity improvement courses. The effort was completed in the last quarter of the current year. The controller’s office has gathered the following year-end data to assess the results of this effort:

	Current Year				Prior Year
Units manufactured and sold		27,000				22,500
Selling price of the product	$	52			$	52
Direct materials used (pounds)		15,200				14,200
Cost per pound of materials	$	10			$	8
Direct labor hours		6,450				7,200
Hourly wage rate	$	25			$	20
Power (kwh)		1,500				750
Cost of power per kwh	$	3			$	3

Required

1. Prepare a summary contribution income statement for each of the 2 years, and calculate the change in operating income.

2. Compute the partial operational productivity ratios for each production factor in each year.

3. Compute the partial financial productivity ratios for each production factor in each year.

Answer 1

1. Summary contribution income statement

	Current				Prior
	Year				Year
Units manufactured and sold		27,000				22,500
Selling price of the product	$	52			$	52
Sales Value - X		1404000		1404000		1170000		1170000
Direct materials used (pounds)		15,200				14,200
Cost per pound of materials	$	10			$	8
Material Cost - A		152000	152000			113600	113600
Direct labor hours		6,450				7,200
Hourly wage rate	$	25			$	20
Labor Cost - B		161250	161250			144000	144000
Power (kwh)		1,500				750
Cost of power per kwh	$	3			$	3
Power Cost - C		4500	4500			2250	2250
Total Cost (A+B+C) - Y			317750	317750			259850	259850
Contribution Revenue (X-Y)				1086250				910150

2. partial operational productivity ratios

	Current				Prior
	Year				Year
Units manufactured and sold		27,000				22,500
Selling price of the product	$	52			$	52
Sales Value - X		1404000		1404000		1170000		1170000
Direct materials used (pounds) - A		15,200				14,200
Material Productivity Ratio (X/A)				92.37				82.39
Direct labor hours - B		6,450				7,200
Labour Productivity Ratio (X/B)				217.67				162.50
Power (kwh) - C		1,500				750
Labour Productivity Ratio (X/C)				936.00				1,560.00

3..  partial Financial productivity ratios

	Current				Prior
	Year				Year
Units manufactured and sold		27,000				22,500
Selling price of the product	$	52			$	52
Sales Value - X		1404000		1404000		1170000		1170000
Direct materials used (pounds)		15,200				14,200
Cost per pound of materials	$	10			$	8
Material Cost - A		152000	152000	152000		113600	113600	113600
Material Productivity Ratio (X/A)				9.24				10.30
Direct labor hours		6,450				7,200
Hourly wage rate	$	25			$	20
Labor Cost - B		161250	161250	161250		144000	144000	144000
Labour Productivity Ratio (X/B)				8.71				8.13
Power (kwh)		1,500				750
Cost of power per kwh	$	3			$	3
Power Cost - C		4500	4500	4500		2250	2250	2250
Power Productivity Ratio (X/C)				312.00				520.00
Total Cost (A+B+C) - Y			317750	317750			259850	259850
Overall Productivity Ratio (X/Y)				4.42				4.50