Question

Scanlon plans represent a​ group-level incentive plan that provides payouts based on whether the implementation of proposals for labor costs savings are successful. Among the important determining factors is the calculation of Scanlon ratios​ (labor costs​ / sales value of​ production). Scanlon ratios are compared to a standard. Payouts are made whenever the Scanlon ratio is less than the standard. The Scanlon ratio for 2014 is 0.80 and it is the standard for comparison. Assume that in 2015 total labor costs amounted to $38,000,000 and sales value of production​ (SVOP) amounted to $75,000,000​Also, assume that total labor costs will increase by 15.0 percent annually and SVOP will increase by 5.0 percent annually starting in 2016.

​a) The Scanlon ratio for 2015 will be. 51.

b) The Scanlon ratio for 2016 will be?

c) The Scanlon ratio for 2017 will be?

​d) The Scanlon ratio for 2018 will be?

Round your response to the nearest hundredths place.

Answer 1

a) Total labor cost in 2015 = 38000000 , Sales value of production in 2015 = 75000000

Scanlon ratio for 2015 = Total labor cost in 2015 / Sales value of production in 2015 = 38000000 / 75000000 = 0.5066 = 0.51 (rounded to nearest hundredths place)

b) Growth rate of labor costs = 15%, Growth rate of SVOP = 5%

Total labor cost in 2016 = Total labor cost in 2015 ( 1 + Growth rate of labor costs) = 38000000 x (1 + 15%) = 38000000 x 1.15 = 43700000

Sales value of production in 2016 = Sales value of production in 2015 (1 + Growth rate of SVOP ) = 75000000 (1 + 5%) = 75000000 x 1.05 = 78750000

Scanlon ratio for 2016 = Total labor cost in 2016 / Sales value of production in 2016 = 43700000 / 78750000 = 0.5549 = 0.55 (rounded to nearest hundredths place)

c) Growth rate of labor costs = 15%, Growth rate of SVOP = 5%

Total labor cost in 2017 = Total labor cost in 2016 ( 1 + Growth rate of labor costs) = 43700000 x (1 + 15%) = 43700000 x 1.15 = 50255000

Sales value of production in 2017 = Sales value of production in 2016 (1 + Growth rate of SVOP ) = 78750000 (1 + 5%) = 78750000 x 1.05 = 82687500

Scanlon ratio for 2017 = Total labor cost in 2017 / Sales value of production in 2017 = 50255000 / 82687500 = 0.6077 = 0.61 (rounded to nearest hundredths place)

d) Growth rate of labor costs = 15%, Growth rate of SVOP = 5%

Total labor cost in 2018 = Total labor cost in 2017 ( 1 + Growth rate of labor costs) = 50255000 x (1 + 15%) = 50255000 x 1.15 = 57793250

Sales value of production in 2018 = Sales value of production in 2017 (1 + Growth rate of SVOP ) = 82687500 (1 + 5%) = 82687500 x 1.05 = 86821875

Scanlon ratio for 2018 = Total labor cost in 2018 / Sales value of production in 2018 = 57793250 / 86821875 = 0.6656 = 0.67 (rounded to nearest hundredths place)