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Refer to Cornerstone Exercise 15.3. Choctaw Company provides the following additional information so that total productivity can be valued: Required: 1. Calculate the cost of inputs in 20x2, assuming no productivity change from 20x1 to 20x2. 2. Calculate the actual cost of inputs for 20x2. What is the net value of the productivity changes? How much profit change is attributable to each input’s productivity change? 3. What if a manager wants to know how much of the total profit change from 20x1 to 20x2 is attributable to price recovery? Calculate the price-recovery component, and comment on its meaning.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 15, Problem 4CE
Textbook Problem
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Refer to Cornerstone Exercise 15.3. Choctaw Company provides the following additional information so that total productivity can be valued:

Chapter 15, Problem 4CE, Refer to Cornerstone Exercise 15.3. Choctaw Company provides the following additional information so

Required:

  1. 1. Calculate the cost of inputs in 20x2, assuming no productivity change from 20x1 to 20x2.
  2. 2. Calculate the actual cost of inputs for 20x2. What is the net value of the productivity changes? How much profit change is attributable to each input’s productivity change?
  3. 3. What if a manager wants to know how much of the total profit change from 20x1 to 20x2 is attributable to price recovery? Calculate the price-recovery component, and comment on its meaning.

1.

To determine

Compute the cost of inputs for the profile 20x2, if there is no change from productivity profile 20x1 to 20x2.

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.

Calculate the cost of inputs for the profile 20x2:

ParticularsAmount ($)
Cost of labor (3)$1,260,000
Cost of materials (4)$6,300,000
Total PQ Cost$7,560,000

Table (1)

Working Notes (1):

Compute the base period productivity ratios for profile 20x1:

Compute the Labor Productivity Profile for 20x1:

Labor Productivity Profile = Number of Units producedLabor hours used=$540,000108,000 hours5.00

Working Notes (2):

Compute the Material Productivity Profile for 20x1:

Material Productivity Profile = Number of Units producedMaterials used=$540,0002,160,000 lbs0

2.

To determine

Compute the actual cost of inputs for the profile 20x2. Indicate the net value of productivity changes and identify the profit change attributable to productivity change of each unit.

3.

To determine

Compute and describe the price recovery component.

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Chapter 15 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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