Question

3. Jason Performance Auto, Inc., modifies 375 autos per year. The manager, Jason Smith, is interested in obtaining a measure of overall performance. He has asked you to provide him with a multifactor measure of last year’s performance as a benchmark for future comparison. You have assembled the following data. Resource inputs were labor, 10,000 hours; 500 suspension and engine modification kits; and energy, 100,000 kilowatt-hours. Average labor cost last year was $20 per hour, kits cost $1,000 each, and energy costs were $3 per kilowatt-hour. What do you tell Mr. Munson?

Answer 1

I should prepare first the following overall performance report:

Overall performance report

Inputs	Units	Input units per output unit
Labor	10,000 hours	10,000 / 375 = 26.67 hours
S & EM	500 Kits	500 / 375 = 1.33 kits
Energy	100,000 KH	100,000 / 375 = 266.67 KH

Cost per unit = (Labor cost + S & EM cost + Energy cost) / 375

                        = [(10,000 × $20) + (500 × $1,000) + (100,000 × $3)] / 375

                        = ($200,000 + $500,000 + $300,000) / 375

                        = $1,000,000 / 375

                        = $2,666.67

Now I should say him that (1) labor hours required per unit of output is 26.67; (2) S & EM kits required per unit of output is 1.33; (3) Energy KH required per unit of output is 266.67; (4) Cost per unit is $2,666.67.