Question:
PRODUCTIVITY
At the end of 2006, Homer Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2007, the president of the company wants an assessment of the changes in the company's productivity. The data needed for the assessment are as follows:
|
|
2006
|
2007
|
|
Output
|
10,000
|
12,000
|
|
Output prices
|
$20
|
$20
|
|
Materials (lbs.)
|
8,000
|
8,400
|
|
Materials unit price
|
$6
|
$8
|
|
Labor (hrs.)
|
5,000
|
4,800
|
|
Labor rate per hour
|
$10
|
$10
|
|
Power (kwh)
|
2,000
|
3,000
|
|
Price per kwh
|
$2
|
$3
|
Required:
1. Compute the partial operational measures for each input for both 2006 and 2007. What can be said about productivity improvement?
2. Prepare a partial income statement for each year, and calculate the total change in profits.
3. Calculate the profit-linked productivity measure for 2007. What can be said about the productivity program?
4. Calculate the price-recovery component. What does this tell you?