Question

Basics of Productivity Measurement

Holbrook Company gathered the following data for the past two years:

	Base Year	Current Year
Output	910,000	1,080,000
Output prices	$14	$14
Input quantities:
Materials (lbs.)	182,000	1,080,000
Labor (hrs.)	91,000	540,000
Input prices:
Materials	$4	$5
Labor	$8	$8

Required:

1. Prepare a productivity profile for each year. If required, round your answers to two decimal places.

Holbrook Company
Productivity Profile
	Base Year	Current Year
Materials productivity ratio
Labor productivity ratio

2. Prepare partial income statements for each year.

Holbrook Company
Partial Income Statements
	Base Year	Current Year
Sales	$	$
Materials
Labor
Gross profit	$	$

Calculate the total change in income. If the change is negative, enter answer using a minus sign.
$

3. Calculate the change in profits attributable to productivity changes. If the change is negative, enter answer using a minus sign. If required, round your intermediate calculations to the nearest dollar.
$

4. Calculate the price-recovery component. If required, round your intermediate calculations to the nearest dollar.
$

Answer 1

1. Please find table below showing Productivity ratios:

		Base Year	Current Year
		Unit	Unit
Output	A	910000	1080000
Material	B	182000	1080000
Labor	C	91000	540000
Material Productivity ratio	A/C	5.00	1.00
Labor Productivity ratio	B/C	10.00	2.00

2. Partial income Statement

		Base Year			Current Year			Change in
		Unit	Per unit rate	Total	Unit	Per unit rate	Total	Total
Output	A	910000	$           14.00	$ 12,740,000.00	1080000	$           14.00	$ 15,120,000.00	$ 2,380,000.00
Material	B	182000	$             4.00	$      728,000.00	1080000	$             5.00	$    5,400,000.00	$    4,672,000.00
Labor	C	91000	$             8.00	$      728,000.00	540000	$             8.00	$    4,320,000.00	$    3,592,000.00
Gross Profit				$ 11,284,000.00			$    5,400,000.00	$ (5,884,000.00)

Income (or) Sales  in current year increased by $ 2,380,000 (i.e.) around 18.68% as compared to base year.

3. To compute change in Profit directly attributable to change in productivity, lets assume units sold as same as base year,and input price per unit also as same as base year; input material units and labor hours are arrived based on the productivity ratio.

		Base Year			Current Year			Change in
		Unit	Per unit rate	Total	Unit	Per unit rate	Total	Total	%
Output	A	910000	$           14.00	$ 12,740,000.00	910000	$           14.00	$ 12,740,000.00
Material	A/D	182000	$             4.00	$        728,000.00	910000	$             4.00	$    3,640,000.00
Labor	A/E	91000	$             8.00	$        728,000.00	455000	$             8.00	$    3,640,000.00
Gross Profit				$ 11,284,000.00			$    5,460,000.00	$    (5,824,000.00)	-52%
Material Productivity ratio	D	5			1
Labor Productivity ratio	E	10			2

This shows profit has decreased by (52%), directly attributable from Change in productivity.

4. Price has revised in current year for Materials and has gone up by 25% (i.e.) $4 - $5 = ($1) Due to this change, profit has decreased by 2% for the same unit of input and output (i.e.) ($ 182,000). Lets assume units sold and productivity ratio are as same as base year, in order to arrive at price recovery component.

		Base Year			Current Year			Change in
		Unit	Per unit rate	Total	Unit	Per unit rate	Total	Total	%
Output	A	910000	$           14.00	$ 12,740,000.00	910000	$           14.00	$ 12,740,000.00	$                           -	0%
Material	A/D	182000	$             4.00	$        728,000.00	182000	$             5.00	$        910,000.00	$          182,000.00	25%
Labor	A/E	91000	$             8.00	$        728,000.00	91000	$             8.00	$        728,000.00	$                           -	0%
Gross Profit				$ 11,284,000.00			$ 11,102,000.00	$       (182,000.00)	-2%
Material Productivity ratio	D	5			5
Labor Productivity ratio	E	10			10