Chapter 16, Problem 42P

1.

To determine

Calculate for the year, 2015 and 2016, the partial financial productivity ratios.

Explanation of Solution

Productivity is the ratio between output and input. It is an indicator of the output produced per unit or per input dollar. It describes different measures of productive efficiency. Therefore, productivity improves when partial productivity increases. Both the input (denominator) and the output (numerator) may be in unit or dollar amount. Calculating productivity primarily aims at improving operation. Enhancements to high- value - added activities reduce the activity costs and/or enhance output value. Low-value - added activities should be eradicated rather than improved. Financial productivity evaluates the output-to-cost relationship of one or more input resources. It is an indicator of the output unit or the output sales values of one or more resources produced per dollar. Partial productivity indices are as many as there are production factors. The most important and frequently used are the partial indices of labor and capital productivity. The partial productivity measures are measures of the nominal price value, physical measures and measurements of fixed price values. Measuring partial productivity concerns designed to measure solutions that do not satisfy the requirements of total productivity measurement, even so, if it will be feasible as total productivity indicators. Productivity describes different measures of productive efficiency. Therefore, productivity improves when partial productivity increases.

		2016			2015
Units manufactured		750,000			1,000,000
Units of CT 140 used		900,000			1,050,000
Number of labor hours used		150,000			200,000
Cost of CT140 per unit		$156			$135
Direct labor wage rate/hr		$56			$62
Total materials cost		$ 140,400,000		= 900,000 × $156	$141,750,000
Total labor cost		$ 8,400,000		= 150,000 × $56	$ 12,400,000
Total materials and labor cost		$ 148,800,000			$154,150,000
Financial partial productivity
Materials		0.005342		= 750,000/140,400,000	0.007055
Labor		0.089286		= 750,000/8,400,000	0.080645
Operational partial productivity
Materials		0.83333		= 750,000/900,000	0.952381
Labor		5.00000		= 750,000/150,000	5.000000
Current Output at prior year productivity
Materials		787,500.00		= 750,000/.952381
Labor		150,000.00		= 750,000/5.0

The image given below represents the decomposition of partial productivity:

Compute the partial financial productivity ratios for 2015 and 2016:

Financial partial productivity	2016		2015
Materials	0.00534	= 750,000/140,400,000	0.00705
Labor	0.08929	= 750,000/8,400,000	0.08065

2.

To determine

State the conclusions that will be drawn about the firm’s productivity in 2016 relative to 2015.

Explanation of Solution

Productivity is the ratio between output and input. It is an indicator of the output produced per unit or per input dollar. It describes different measures of productive efficiency. Therefore, productivity improves when partial productivity increases. Both the input (denominator) and the output (numerator) may be in unit or dollar amount. Calculating productivity primarily aims at improving operation. Enhancements to high- value - added activities reduce the activity costs and/or enhance output value. Low-value - added activities should be eradicated rather than improved. Financial productivity evaluates the output-to-cost relationship of one or more input resources. It is an indicator of the output unit or the output sales values of one or more resources produced per dollar. Partial productivity indices are as many as there are production factors. The most important and frequently used are the partial indices of labor and capital productivity. The partial productivity measures are measures of the nominal price value, physical measures and measurements of fixed price values. Measuring partial productivity concerns designed to measure solutions that do not satisfy the requirements of total productivity measurement, even so, if it will be feasible as total productivity indicators. Productivity describes different measures of productive efficiency. Therefore, productivity improves when partial productivity increases.

		2016			2015
Units manufactured		750,000			1,000,000
Units of CT 140 used		900,000			1,050,000
Number of labor hours used		150,000			200,000
Cost of CT140 per unit		$156			$135
Direct labor wage rate/hr		$56			$62
Total materials cost		$ 140,400,000		= 900,000 × $156	$141,750,000
Total labor cost		$ 8,400,000		= 150,000 × $56	$ 12,400,000
Total materials and labor cost		$ 148,800,000			$154,150,000
Financial partial productivity
Materials		0.005342		= 750,000/140,400,000	0.007055
Labor		0.089286		= 750,000/8,400,000	0.080645
Operational partial productivity
Materials		0.83333		= 750,000/900,000	0.952381
Labor		5.00000		= 750,000/150,000	5.000000
Current Output at prior year productivity
Materials		787,500.00		= 750,000/.952381
Labor		150,000.00		= 750,000/5.0

The image given below represents the decomposition of partial productivity:

Financial partial productivity of direct materials declined from.00705 in 2015 to.00534 in 2016. Direct financial labor partial productivity increased from 0.08065 in 2015 to 0.08929 in 2016.

3.

To determine

Split the changes in the partial financial productivity ratio from 2015 to 2016 into changes in productivity, changes in input prices and changes in output..

Explanation of Solution

Productivity is the ratio between output and input. It is an indicator of the output produced per unit or per input dollar. It describes different measures of productive efficiency. Therefore, productivity improves when partial productivity increases. Both the input (denominator) and the output (numerator) may be in unit or dollar amount. Calculating productivity primarily aims at improving operation. Enhancements to high- value - added activities reduce the activity costs and/or enhance output value. Low-value - added activities should be eradicated rather than improved. Financial productivity evaluates the output-to-cost relationship of one or more input resources. It is an indicator of the output unit or the output sales values of one or more resources produced per dollar. Partial productivity indices are as many as there are production factors. The most important and frequently used are the partial indices of labor and capital productivity. The partial productivity measures are measures of the nominal price value, physical measures and measurements of fixed price values. Measuring partial productivity concerns designed to measure solutions that do not satisfy the requirements of total productivity measurement, even so, if it will be feasible as total productivity indicators. Productivity describes different measures of productive efficiency. Therefore, productivity improves when partial productivity increases.

		2016			2015
Units manufactured		750,000			1,000,000
Units of CT 140 used		900,000			1,050,000
Number of labor hours used		150,000			200,000
Cost of CT140 per unit		$156			$135
Direct labor wage rate/hr		$56			$62
Total materials cost		$ 140,400,000		= 900,000 × $156	$141,750,000
Total labor cost		$ 8,400,000		= 150,000 × $56	$ 12,400,000
Total materials and labor cost		$ 148,800,000			$154,150,000
Financial partial productivity
Materials		0.005342		= 750,000/140,400,000	0.007055
Labor		0.089286		= 750,000/8,400,000	0.080645
Operational partial productivity
Materials		0.83333		= 750,000/900,000	0.952381
Labor		5.00000		= 750,000/150,000	5.000000
Current Output at prior year productivity
Materials		787,500.00		= 750,000/.952381
Labor		150,000.00		= 750,000/5.0

4.

To determine

Mention that any further insight into the relative productivity for either 2015 or 2016 will be generated by the detailed information provided by separating the change in the partial financial productivity rate.

Explanation of Solution

Productivity is the ratio between output and input. It is an indicator of the output produced per unit or per input dollar. It describes different measures of productive efficiency. Therefore, productivity improves when partial productivity increases. Both the input (denominator) and the output (numerator) may be in unit or dollar amount. Calculating productivity primarily aims at improving operation. Enhancements to high- value - added activities reduce the activity costs and/or enhance output value. Low-value - added activities should be eradicated rather than improved. Financial productivity evaluates the output-to-cost relationship of one or more input resources. It is an indicator of the output unit or the output sales values of one or more resources produced per dollar. Partial productivity indices are as many as there are production factors. The most important and frequently used are the partial indices of labor and capital productivity. The partial productivity measures are measures of the nominal price value, physical measures and measurements of fixed price values. Measuring partial productivity concerns designed to measure solutions that do not satisfy the requirements of total productivity measurement, even so, if it will be feasible as total productivity indicators. Productivity describes different measures of productive efficiency. Therefore, productivity improves when partial productivity increases.

		2016			2015
Units manufactured		750,000			1,000,000
Units of CT 140 used		900,000			1,050,000
Number of labor hours used		150,000			200,000
Cost of CT140 per unit		$156			$135
Direct labor wage rate/hr		$56			$62
Total materials cost		$ 140,400,000		= 900,000 × $156	$141,750,000
Total labor cost		$ 8,400,000		= 150,000 × $56	$ 12,400,000
Total materials and labor cost		$ 148,800,000			$154,150,000
Financial partial productivity
Materials		0.005342		= 750,000/140,400,000	0.007055
Labor		0.089286		= 750,000/8,400,000	0.080645
Operational partial productivity
Materials		0.83333		= 750,000/900,000	0.952381
Labor		5.00000		= 750,000/150,000	5.000000
Current Output at prior year productivity
Materials		787,500.00		= 750,000/.952381
Labor		150,000.00		= 750,000/5.0

The decomposition indicates that changes in financial efficiency from 2015 to 2016 can be due to unfavorable efficiency and price variance of direct materials, partially offset by favorable cost variance for direct labor.