3. Jason Performance Auto, Inc., modifies 375 autos per year. The manager, Jason

ID: 2401539 • Letter: 3

Question

3. Jason Performance Auto, Inc., modifies 375 autos per year. The manager, Jason Smith, is interested in obtaining a measure of overall performance. He has asked you to provide him with a multifactor measure of last year’s performance as a benchmark for future comparison. You have assembled the following data. Resource inputs were labor, 10,000 hours; 500 suspension and engine modification kits; and energy, 100,000 kilowatt-hours. Average labor cost last year was $20 per hour, kits cost $1,000 each, and energy costs were $3 per kilowatt-hour. What do you tell Mr. Munson?

Explanation / Answer

I should prepare first the following overall performance report:

Overall performance report

Inputs

Units

Input units per output unit

Labor

10,000 hours

10,000 / 375 = 26.67 hours

S & EM

500 Kits

500 / 375 = 1.33 kits

Energy

100,000 KH

100,000 / 375 = 266.67 KH

Cost per unit = (Labor cost + S & EM cost + Energy cost) / 375

= [(10,000 × $20) + (500 × $1,000) + (100,000 × $3)] / 375

= ($200,000 + $500,000 + $300,000) / 375

= $1,000,000 / 375

= $2,666.67

Now I should say him that (1) labor hours required per unit of output is 26.67; (2) S & EM kits required per unit of output is 1.33; (3) Energy KH required per unit of output is 266.67; (4) Cost per unit is $2,666.67.