1 a.
Ascertain the productivity profile for 20x1 using actual inputs.
1 a.
Explanation of Solution
Productivity measurement: The productivity measurement refers to the quantitative assessment of the changes in the productivity.
Profile measurement and analysis: The profile measurement and analysis refers to the computation of a set of operational partial productivity measures and their comparison to the corresponding set of base period, for the assessment of the nature of changes in productivity.
Compute the productivity profile for 20x1:
Compute the Material Productivity Profile for 20x1:
Compute the Labor Productivity Profile for 20x1:
The Material Productivity Profile is 1.67 and Labor Productivity Profile is 0.83.
1 b.
Ascertain the productivity profile for 20x2 for the proposed process changes.
1 b.
Explanation of Solution
Compute the productivity profile for 20x2 Change 1:
Compute the Material Productivity Profile for 20x2 Change 1:
Compute the Labor Productivity Profile for 20x2 Change 1:
The Material Productivity Profile is 1.43 and Labor Productivity Profile is 1.25.
Compute the productivity profile for 20x2 Change 2:
Compute the Material Productivity Profile for 20x2 Change 2:
Compute the Labor Productivity Profile for 20x2 Change 2:
The Material Productivity Profile is 2.00 and Labor Productivity Profile is 1.00.
There is an overall improvement in the output input ratio from 20x1 to 20x2.
1 c.
Ascertain the productivity profile for optimal input combination and recommend the most productive profile.
1 c.
Explanation of Solution
Compute the productivity profile for optimal input combination:
Compute the Material Productivity Profile for optimal input combination:
Compute the Labor Productivity Profile for optimal input combination:
The Material Productivity Profile is 2.50 and Labor Productivity Profile is 1.25.
There is an overall improvement in the output input ratio from 20x1 to 20x2. The change 1 in 20x2 has the optimum labor productivity, however the material productivity is very low. In the Change 2 of 20x2, both material and labor productivity are good. Now for the decision regarding the implementation of the productivity profile, this depends on the productivity trade-offs of the inputs.
2.
Ascertain the productive inefficiency among the given combinations and compare the improvement along with the changes in the technical and
2.
Explanation of Solution
Total productive efficiency: The total productive efficiency refers to the point where the maximum technical and allocative efficiency is achieved. This is the point where the production of a new product may compromise the production of another product, as the optimum quantity of inputs is being used to get the desired output.
The technical efficiency ensures no more units of input than the required number is used for any mix of inputs.
The allocative efficiency ensures the use of an inexpensive and most technically efficient mix.
Compute the total cost of productive efficiency:
Particulars |
Number of Units (A) | Cost per Unit (B) | |
20x1 | |||
Cost of materials | 33,000 | $ 60 | $ 1,980,000 |
Cost of labor | 66,000 | $ 15 | $ 990,000 |
Total Cost | $ 2,970,000 | ||
20x2 Change 1 | |||
Cost of materials | 38,500 | $ 60 | $ 2,310,000 |
Cost of labor | 44,000 | $ 15 | $ 660,000 |
Total Cost | $ 2,970,000 | ||
20x2 Change 2 | |||
Cost of materials | 27,500 | $ 60 | $ 1,650,000 |
Cost of labor | 55,000 | $ 15 | $ 825,000 |
Total Cost | $ 2,475,000 | ||
Optimal Input | |||
Cost of materials | 22,000 | $ 60 | $ 1,320,000 |
Cost of labor | 44,000 | $ 15 | $ 660,000 |
Total Cost | $ 1,980,000 |
Table (1)
Compute the total cost of productive inefficiency:
Compute the cost of productive inefficiency for 20x1:
Compute the cost of productive inefficiency for 20x2 Change 1:
Compute the cost of productive inefficiency for 20x2 Change 2:
Compute the potential improvement:
Compute the potential improvement for 20x2 Change 1:
Compute the potential improvement for 20x2 Change 2:
The Change 1 has greater technical efficiency but the allocative efficiency is reduced, on the other hand Change 2 is able to attain both technical and allocative efficiency.
3.
Compute and describe the price recovery component.
3.
Explanation of Solution
Profit-linked productivity measurement and analysis: The profit-linked productivity measurement and analysis is the ascertainment of the amount of change in profit, from the base period to the current period, due to the various changes in the productivity.
Compute the profit-linked productivity measurement:
Compute the profit-linked productivity measurement for 20x2 Change 1:
Compute the profit-linked productivity measurement for 20x2 Change 2:
The profit-linked productivity measurement takes into consideration only the changes in the input with no regards to the base or optimal combination.
Want to see more full solutions like this?
Chapter 15 Solutions
CORNERSTONES OF COST MANAGEMENT
- Mabbut Company has the following departmental manufacturing layout for one of its plants: A consulting firm recommended a value stream with the following manufacturing cell: Required: 1. Calculate the total time it takes to produce a batch of 10 units using the traditional departmental manufacturing layout. 2. Using cellular manufacturing, how much time is saved producing the same batch of 10 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. Assume the processing time of Welding is reduced to 6 minutes, while the times of the other processes stay the same. What is the production rate now, and how long will it take to produce a batch of 10 units if the cell is in a continuous production mode?arrow_forwardKagle design engineers are in the process of developing a new green product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed 550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit-and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system: Variable conversion activity rate: 100 per direct labor hour Material usage rate: 20 per part ABC system: Labor usage: 15 per direct labor hour Material usage (direct materials): 20 per part Machining: 75 per machine hour Purchasing activity: 150 per purchase order Setup activity: 3,000 per setup hour Warranty activity: 500 per returned unit (usually requires extensive rework) Customer repair cost: 25 per repair hour (average) Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis? 2. Select the lower-cost design using ABC analysis. Explain why the analysis differs from the unit-based analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to 10 per unit for Design A and 40 per unit for Design B? Assume that the environmental cost is borne by society. Now which is the better design?arrow_forwardMaterials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?arrow_forward
- Pinter Company had the following environmental activities and product information: 1. Environmental activity costs 2. Driver data 3. Other production data Required: 1. Calculate the activity rates that will be used to assign environmental costs to products. 2. Determine the unit environmental and unit costs of each product using ABC. 3. What if the design costs increased to 360,000 and the cost of toxic waste decreased to 750,000? Assume that Solvent Y uses 6,000 out of 12,000 design hours. Also assume that waste is cut by 50 percent and that Solvent Y is responsible for 14,250 of 15,000 pounds of toxic waste. What is the new environmental cost for Solvent Y?arrow_forwardAnderson Company has the following departmental manufacturing structure for one of its products: After some study, the production manager of Anderson recommended the following revised cellular manufacturing approach: Required: 1. Calculate the total time it takes to produce a batch of 20 units using Andersons traditional departmental structure. 2. Using cellular manufacturing, how much time is saved producing the same batch of 20 units? Assuming the cell operates continuously, what is the production rate? Which process controls this production rate? 3. What if the processing times of molding, welding, and assembly are all reduced to six minutes each? What is the production rate now, and how long will it take to produce a batch of 20 units?arrow_forwardEagle Brand Inc. produces two products as follows: Eagle Brand has 1,000 lbs. of raw materials that can be used to produce Products X and Y. Which of the following alternatives should Eagle Brand accept to maximize the contribution margin? a. 100 units of Product Y. b. 250 units of Product X. c. 200 units of Product X and 20 units of Product Y. d. 200 units of Product X and 50 units of Product Y.arrow_forward
- Lander Parts, Inc., produces various automobile parts. In one plant, Lander has a manufacturing cell with the theoretical capability to produce 450,000 fuel pumps per quarter. The conversion cost per quarter is 9,000,000. There are 150,000 production hours available within the cell per quarter. Required: 1. Compute the theoretical velocity (per hour) and the theoretical cycle time (minutes per unit produced). 2. Compute the ideal amount of conversion cost that will be assigned per subassembly. 3. Suppose the actual time required to produce a fuel pump is 40 minutes. Compute the amount of conversion cost actually assigned to each unit produced. What happens to product cost if the time to produce a unit is decreased to 25 minutes? How can a firm encourage managers to reduce cycle time? Finally, discuss how this approach to assigning conversion cost can improve delivery time. 4. Assuming the actual time to produce one fuel pump is 40 minutes, calculate MCE. How much non-value-added time is being used? How much is it costing per unit? 5. Cycle time, velocity, MCE, conversion cost per unit (theoretical conversion rate actual conversion time), and non-value-added costs are all measures of performance for the cell process. Discuss the incentives provided by these measures.arrow_forwardIf 60,000 machine hours are available, and management desires to follow an optimal strategy, how many units of each product should the firm manufacture? How many units of each product should be purchased? With all other things constant, if management is able to reduce the direct material for an electric mixer to $23 per unit, how many units of each product should be manufactured? Purchased?arrow_forwardA component of the direct materials cost requires the nectar of a specific plant in South America. If the company could eliminate this special ingredient, the materials cost would decrease by 25%. However, this would require design changes of $300,000 to engineer a chemical equivalent of the ingredient. Will this design change allow the product to meet its target cost?arrow_forward
- UTAH CORP. is a chemical manufacturer that supplies various products to industrial users. The company plans to introduce a new chemical solution called Bysap, for which it needs to develop a standard product cost. The following labor information is available on the production of Bysap. The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Salex, and Protet. The finished product is highly unstable, and one 10-liter batch out of six is rejected at the final inspection. Rejected batches have no commercial value and are thrown out. It takes a worker 35 minutes to process one 10-liter batch of Bysap. Employees work on eight-hour a day, including one hour per day for rest breaks and cleanup. What is the standard labor time to produce one 10-liter batch of Bysap? 2. MAINE INC.’s direct labor costs for the month of May are as follows: Standard direct labor hours allowed 12,500 Actual direct labor…arrow_forwardMSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Company (MLC) to produce 10,000 units of the module per year for $16 each. The following information pertains to MSI’s production of the control modules: Direct materials $ 9 Direct labor 4 Variable manufacturing overhead 2 Fixed manufacturing overhead 3 Total cost per unit $ 18 MSI has determined it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Required: 1. Compute the difference in cost between making and buying the control module. 2. Should MSI buy the modules from MLC or continue to make them? 3-a. Suppose the MSI space currently used for the modules could be utilized by a new product line that would generate…arrow_forwardMohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 10,000 units per year for $7.00 each. Mohave has the following information about the cost of producing tote bags: Direct materials $ 3.00 Direct labor 2.00 Variable manufacturing overhead 1.00 Fixed manufacturing overhead 2.50 Total cost per unit $ 8.50 Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 75 percent of the fixed overhead cost is unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags.Required:1. Compute the difference in cost between making and buying the umbrella tote bag.2. Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them?3-a. Suppose that the space Mohave currently uses to make the bags could be…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningEssentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub