At the end of 2018, Diatomic Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2019, the president of the company wants an assessment of the changes on the company's productivity. The data needed for the assessment are as follows: 2018 2019 Output45,00054,000Output prices$10.00$10.00Materials (lbs.)22,50022,950Materials unit price$3.00$4.00Labor (hrs.)18,00016,875Labor rate per hour$5.00$5.00Power (kwh)11,25014,625Price per kwh$2.00$3.00By how much did profit change as a result of profitability changes in labor?a.$23,625 increaseb.$23,625 decreasec.$5,625 increased.$45,000 increase

Profitability of a product can be changed due to the changes made in labor process also. Working…

Answered: At the end of 2018, Diatomic Company…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter14: Quality And Environmental Cost Management

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At the end of 2018, Diatomic Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2019, the president of the company wants an assessment of the changes on the company's productivity. The data needed for the assessment are as follows:

	2018	2019
Output	45,000	54,000
Output prices	$10.00	$10.00
Materials (lbs.)	22,500	22,950
Materials unit price	$3.00	$4.00
Labor (hrs.)	18,000	16,875
Labor rate per hour	$5.00	$5.00
Power (kwh)	11,250	14,625
Price per kwh	$2.00	$3.00

By how much did profit change as a result of profitability changes in labor?

a.$23,625 increase

b.$23,625 decrease

c.$5,625 increase

d.$45,000 increase

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