Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 15, Problem 4CE

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.

Expert Solution
Check Mark
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 lbs0.25

The Labor Productivity Profile is 5.00 and Material Productivity Profile is 0.25 for 20x1.

Working Notes (3):

Calculate the cost of labor:

Labor cost  = Number of units producedLabor Productivity Profile  × Wages per labor hour450,0005 (1)×$14= 90,000×$14=$1,260,000

Working Notes 4):

Calculate the cost of materials:

Material cost  = Number of units producedMaterial Productivity Profile  × Cost per pound of material450,0000.25 (2)×$3.50= 1,800,000×$3.50 = $6,300,000

2.

Expert Solution
Check Mark
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.

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.

Calculate the current cost of inputs for the profile 20x2:

ParticularsAmount ($)
Cost of labor (5)$1,575,000
Cost of materials (6)$5,250,000
Total Current Cost$6,825,000

Table (2)

Working Notes (5):

Calculate the cost of labor:

Labor cost  = Number of units producedLabor Productivity Profile  × Wages per labor hour450,0005 (1)×$14= 90,000×$14=$1,260,000

Working Notes (6):

Calculate the cost of materials:

Material cost  = Number of units producedMaterial Productivity Profile  × Cost per pound of material450,0000.25 (2)×$3.50= 1,800,000×$3.50 = $6,300,000

Compute the profit linked productivity measure:

InputAB=450,000ACD=(B×C)EF=(E×C)G=(DF)
Labor590,000 $14 $1,260,000 112,500 $1,575,000 ($315,000)
Materials0.251,800,000 $3.50 $6,300,000 1,500,000 $5,250,000 $1,050,000
Total   $7,560,000 $6,825,000$735,000

Table (3)

The Net productivity change is $735,000.

The Labor productivity change is ($315,000).

The materials productivity change is $1,050,000.

3.

Expert Solution
Check Mark
To determine

Compute and describe the price recovery component.

Explanation of Solution

Price-recovery component: The price-recovery component refers to the differences amongst the changes in the total profit with the changed in the productivity effects.

Compute the profit linked productivity measure:

ParticularsProfile 20x1Profile 20x2Amount ($)
Revenues(7) $10,800,000 (8) $9,900,000 (9) ($900,000)
Costs(10) $8,640,000 $6,825,000 (11) $1,815,000
Total Profit$2,160,000$3,075,000$915,000

Table (4)

Working Notes (7):

Calculate the Revenues for Profile for 20x1:

Revenues = Number of units produced × Selling price= 540,000×$20=$10,800,000

Working Notes (8):

Calculate the Revenues for Profile for 20x2:

Revenues = Number of units produced × Selling price= 450,000×$22=$9,900,000

Working Notes (9):

Calculate the changes in revenues:

Revenues = Revenues for Profile 20x1 Revenues for Profile 20x2= $10,800,000$9,900,000=($900,000)

Working Notes (10):

Calculate the cost of inputs for Profile 20x1:

Cost of inputs = Labor hours usedWages per labor hour+(Materials used (lbs.)×Cost per pound of material)108,000$12+(2,160,000×$3.50)=$8,640,000

Working Notes (11):

Calculate the changes in cost of inputs:

Costs = Costs for Profile 20x1Costs for Profile 20x2= $8,640,000$6,825,000=$1,815,000

Compute the Price-recovery component:

Price-recovery component = (Total profit changeProfit-linked productivity change)= $915,000$735,000=$180,000

The Price-recovery component is $180,000.

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Chapter 15 Solutions

Cornerstones of Cost Management (Cornerstones Series)

Ch. 15 - When will the average unit cost be useful for...Ch. 15 - Explain why changes in value-stream profitability...Ch. 15 - Prob. 13DQCh. 15 - Prob. 14DQCh. 15 - What is productivity measurement?Ch. 15 - Prob. 16DQCh. 15 - Prob. 17DQCh. 15 - Discuss the advantages and disadvantages of...Ch. 15 - Prob. 19DQCh. 15 - Prob. 20DQCh. 15 - What is profit-linked productivity measurement and...Ch. 15 - Prob. 22DQCh. 15 - What is the price-recovery component?Ch. 15 - Anderson Company has the following departmental...Ch. 15 - During the week of June 12, Harrison Manufacturing...Ch. 15 - In 20x2, Choctaw Company implements a new process...Ch. 15 - Refer to Cornerstone Exercise 15.3. Choctaw...Ch. 15 - Prob. 5ECh. 15 - Bienestar Inc., has the following departmental...Ch. 15 - Bienestar, Inc., implemented cellular...Ch. 15 - Henderson, Inc., has just created five order...Ch. 15 - Prob. 9ECh. 15 - Shorts Manufacturing, Inc., has implemented lean...Ch. 15 - The following Box Scorecard was prepared for a...Ch. 15 - Prob. 12ECh. 15 - Carsen Company produces handcrafted pottery that...Ch. 15 - Helena Company needs to increase its profits and...Ch. 15 - Helena Company needs to increase its profits and...Ch. 15 - Prob. 16ECh. 15 - Lean manufacturing is characterized by all but one...Ch. 15 - Lean manufacturing uses value streams to produce a...Ch. 15 - A manufacturing cell within a value stream is...Ch. 15 - Total productive efficiency is achieved when both...Ch. 15 - The following information is given for a...Ch. 15 - Sixty employees (all CPAs) of a local public...Ch. 15 - Sixty employees (all CPAs) of a local public...Ch. 15 - Bradford Company, a manufacturer of small tools,...Ch. 15 - Continuous improvement is the governing principle...Ch. 15 - Prob. 26PCh. 15 - Jadlow Company produces handcrafted leather...Ch. 15 - Prob. 28P
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