Pinnacle Company has been unhappy with the financial accounting variances that its cost accounting system has...

Pinnacle Company has been unhappy with the financial accounting variances that its cost accounting system has been producing, because its managers believe that there is more to evaluating an operation than just examining accounting numbers. Therefore, it has started gathering data to assist in the examination of nonfinancial results of operations. The following information relates to the manufacture of remote control units for televisions, radios, and stereo components:

Year 1 Year 2

Remote control units produced and sold 80,000 100,000

Direct manufacture labour-hours 12,000 13,200

Direct materials used (sets) 80,600 100,500

Direct manufacture cost per hour $18 $20

Direct materials cost per set $31 $32

Required:

1) What is the partial productivity of direct materials for each year?

2) What is the partial productivity of direct manufacturing labour for each year?

3) Did each area improve between Year 1 and Year 2? Explain.

4) What will be the projected direct material and labour needs for Year 3 if remote control units increase by 12,000 units, assuming Pinnacle Company applies the constant returns to scale technology?

Solutions

Expert Solution

Part 1
	Year 1	Year 2
Partial productivity of direct materials
Production units	80000	100000
Direct materials used	80600	100500

Partial productivity of direct materials (%)	99.25558	99.50249
Part 2
	Year 1	Year 2
Partial productivity of direct labour hour
Production units	80000	100000
Direct manufacturing labour hour	12000	13200

Partial productivity of direct labour hour (per hour)	6.666667	7.575758

Part 3:

As can be seen that the both areas have been improved in the year 2 as compare to the productivity of direct material as well as productivity of direct labour hour in year 1. The direct material productivity has increased from 99.26% in year 1 to 99.50% in year 2. Similarly the partial productivity of direct manufacturing labour hour in the year 1 was 6.67 units per hour whereas the same has improved to 7.58 units per direct manufacturing labour hour in the year 2.

Year		3
Partial productivity of direct materials
Production units		112000
Required direct materials used		112560

Partial productivity of direct materials


Partial productivity of direct labour hour
Production units		112000
Required direct manufacturing labour hour		14784

ekkarill92 answered 9 months ago

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