ABC Corporation makes small parts from steel alloy sheets. Management has the fl
ID: 2491088 • Letter: A
Question
ABC Corporation makes small parts from steel alloy sheets. Management has the flexibility to substitute direct materials for direct manufacturing labor. If workers cut the steel carefully, more parts can be manufactured from a metal sheet, but this requires additional direct manufacturing labor hours. Alternatively, ABC can use fewer labor hours if it is willing to tolerate more waste of direct materials. ABC decided to improve materials productivity this year and the following provides information for the current and prior year:
Required: Carry all computations to four digits after the decimal point.
1. Compute the partial financial productivity for both labor and materials for each of the two years.
Prior Year Current Year Output units 400,000 490,000 Direct Manufacturing labor hours 10,000 13,500 Wages per hour $26 $24 Direct materials used 160 tons 180 tons Direct materials cost per ton $3,375 $3,250Explanation / Answer
Partial financial productivity for material
= Output in units / direct material cost
Partial Financial productivity of labour
=Output in units / total labour cost
For Prior year
Partial financial productivity for material = 400000 units / $540000 = 0.74 units per dollar of direct material cost
Partial Financial productivity of labour =400000 units / $260000 = 1.54 units per dollar of direct labour cost
Current Year
Partial financial productivity for material = 490000 units / $585000 = 0.84 units per dollar of direct material cost
Partial Financial productivity of labour =490000 units / $324000 = 1.51 units per dollar of direct labour cost
Prior year Current Year Direct Manufacturing labor hours 10000 13500 Wages per hour $ 26 $ 24 Total Labour cost $ 2,60,000 $ 3,24,000