Power Company has been unhappy with the financial accounting variances that its cost accounting system has been producing, because its managers believe that there is more to evaluating an operation than just examining accounting numbers. Therefore, it has started gathering data to assist in the examination of nonfinancial results of operations. The following information relates to the manufacture of remote control units for televisions, radios, and stereo components.
Year 1 Year 2
Remote control units produced and sold 40,000 50,000
Direct manufacture labour-hours 6,000 6,600
Direct materials used (sets) 40,300 50,250
Direct manufacture cost per hour $18 $20
Direct materials cost per set $31 $32
Required:
a. What is the partial productivity of direct materials for each year?
b. What is the partial productivity of direct manufacturing labour for each year?
c. Did each area improve between year 1 and year 2? Explain.
d. What will be the projected direct material and labour needs for year 3 if remote control units increase by 6,000 units, assuming Power Company applies the constant returns to scale technology?
Quick Reply
