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Profit-Linked Productivity Measurement In 2015, Choctaw Company implements a new process affecting labor and materials. Choctaw...

Profit-Linked Productivity Measurement In 2015, Choctaw Company implements a new process affecting labor and materials. Choctaw Company provides the following information so that total productivity can be valued: 2014 2015 Number of units produced 510,000 420,000 Labor hours used 102,000 105,000 Materials used (lbs.) 1,700,000 1,050,000 Unit selling price 24 26 Wages per labor hour 14 16 Cost per pound of material 3.90 4.00

Required: 1. Calculate the cost of inputs in 2015, assuming no productivity change from 2014 to 2015. If required, round your answers to the nearest dollar.

Cost of labor $

Cost of materials

Total PQ cost $

2. Calculate the actual cost of inputs for 2015. If required, round your answers to the nearest dollar.

Cost of labor $

Cost of materials

Total current cost $

What is the net value of the productivity changes? If required, round your answers to the nearest dollar. $

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 2014 to 2015 is attributable to price recovery?

Calculate the total profit change. $

Calculate the price-recovery component. $

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2014 2015
No of units produced 510000 420000
Labor Hours Used 102000 105000
Material Used 1700000 1050000
Unit Selling Price 24 26
Wages Per hour 14 16
Cost per pound of Material 3.9 4
1 Since no productivity changed assumed for 2015, Material and Hours used in 2014 will be used in 2015 at 2015 rate
$
Cost of Labor 102000*16 1632000
Cost of Material 1700000*4 6800000
Total 8432000
2 Actual Cost
$
Cost of Labor 105000*16 1680000
Cost of Material 1050000*4 4200000
Total 5880000
2b
Net Value of Productiviy Change 8432000-5880000 2552000
Labor Productivity Change 1632000-1680000 -48000
Material Productivity Change 6800000-4200000 2600000
3 Profit Change
2014 2015
No of units produced 510000 420000
Unit Selling Price 24 26
Sale Revenue (Unit*Unit Selling Price 12240000 10920000
Less: Labor Cost 1428000 1680000
Less: Material Cost 6630000 4200000
Profit 4182000 5040000
Change in Profit (4182000-5040000) -858000
Price Recovery Component
Revenue Effect (Selling Price 2015-Selling Price 2014)*Sale Unit in 2015
(26-24)*420000
840000 F
Cost Effect of Labor (Price in 2015-Price in 2014)*Unit of Input needed to produce 2015 Output in 2014
(16-14)*(102000/510000)*420000
2*84000
168000 U
Cost Effect of Material (Price in 2015-Price in 2014)*Unit of Input needed to produce 2015 Output in 2014
(4-3.9)*(1700000/510000)*420000
0.1*1400000
140000 U
Revenue Effect 840000 F
Cost Effect of Labor 168000 U
Cost Effect of Material 140000 U
Price Recovery Component 532000 F

ekkarill92 answered 1 year ago
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