Question

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. $

Answer 1

Please find below answer of your question. If this helped, please hit LIKE button.

	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