Partial Financial Productivity ABC Corporation makes small parts from steel alloy sheets.Management has the flexibility to substitute direct materials for direct manufacturing labor and viceversa. If workers cut the steel carefully, more parts can be manufactured from a metal sheet, but thisrequires additional direct manufacturing labor hours. Alternatively, ABC can use fewer labor hoursif it is willing to tolerate more waste of direct materials. ABC decided to improve materials productivity this year and the following provides information for the current and prior year:Prior Year Current YearOutput units 400,000 490,000Direct manufacturing labor hours 10,000 13,500Wages per hour $26 $24Direct materials used 160 tons 180 tonsDirect materials cost per ton $3,375 $3,250Required Carry all computations to 4 digits after the decimal point.1. Compute the partial financial productivity for both direct materials and direct labor for each of the 2 years.2. Calculate ABC’s combined direct labor and direct material productivity in units per dollar in each of the2 years.3. Evaluate management’s decision to substitute one production factor for another.
Partial Financial Productivity ABC Corporation makes small parts from steel alloy sheets.
Management has the flexibility to substitute direct materials for direct manufacturing labor and vice
versa. If workers cut the steel carefully, more parts can be manufactured from a metal sheet, but this
requires additional direct manufacturing labor hours. Alternatively, ABC can use fewer labor hours
if it is willing to tolerate more waste of direct materials. ABC decided to improve materials productivity this year and the following provides information for the current and prior year:
Prior Year Current Year
Output units 400,000 490,000
Direct manufacturing labor hours 10,000 13,500
Wages per hour $26 $24
Direct materials used 160 tons 180 tons
Direct materials cost per ton $3,375 $3,250
Required Carry all computations to 4 digits after the decimal point.
1. Compute the partial financial productivity for both direct materials and direct labor for each of the 2 years.
2. Calculate ABC’s combined direct labor and direct material productivity in units per dollar in each of the
2 years.
3. Evaluate management’s decision to substitute one production factor for another.
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