Interperiod Measurement of Productivity, Profit-Linked Measurement Helena Compan

Question

Interperiod Measurement of Productivity, Profit-Linked Measurement Helena Company needs to increase its profits and so has embarked on a program to increase its overall productivity. After one year of operation, Kent Olson, manager of the Columbus plant, reported the following results for the base period and its most recent year of operations: 20x1 20x2 Output Power (quantity used) 23,250 11,100 Materials (quantity used) 37,200 47,400 186,000 217,400 Suppose the following input prices are provided for each year: 20x1 20x2 Unit price (power) 6 Unit price (materials) 16 Unit selling price $ 7 15 12 10 Required: 1. Compute the profit-linked productivity measure. By how much did profits increase due to productivity? 1f required, round your intermediate calculations and final answers to the nearest dollar amount 2. Calculate the price-recovery component for 20x2. If required, round your intermediate calculations and fin answers to the nearest dollar amount.

Explanation / Answer

Ans. 1 Calculation of Profit increase due to productivity or comprative statement

                                                2001                  2002

Sales 1860000    2608800

Power                                       139500             77700

Material                                     595200    711000

Profit    1125300 1820100

Increase profit due to productivity (1820100-1125300) = 694800

2. Calculation of Price Recovery component for Revenue effect for the year of 2002 =

                                        =       (current selling price-old selling price)Xcurrent no of unit sold

                                        = (12-10)X217400 = 434800

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