Question

As the cost accounting manager at Cambria Chemicals (CC), you are responsible for compiling and reporting various performance measures to the senior managers. The company instituted many efficiency improvement programs recently, and the CFO has asked you to measure and report total factor productivity measures based on the three inputs (material, labor, and overhead). Data for the last two years follow:

	Year 2			Year 1
Gallons input (thousands)		10,900			9,900
Labor-hours (thousands)		8,700			6,300
Gallons of output (thousands)		12,700			10,700

From the accounting records, you also gather the following information for the two years:

	Year 2				Year 1
Cost of inputs (per gallon)	$	89			$	76
Wage rate (per hour)	$	24			$	16
Total manufacturing overhead	$	1,360,000			$	1,170,000
Selling price of output (per gallon)	$	380			$	385

Required:

a. Compute the total factor productivity measures for year 1 and year 2 based on the three inputs (material, labor, and overhead). (Round your answers to 3 decimal places.)

Answer 1

SOLUTION

(A)

YEAR - 1

	Amount ($)	Amount ($)
Total output value (A) ($385 * 10,700)		4,119,500
Materials value ($76 * 9,900)	752,400
Labor value ($16* 6,300)	100,800
Overhead value	1,170,000
Total value of input costs (B)		2,023,200
Total factor productivity (A/B)		2.036

YEAR - 2

	Amount ($)	Amount ($)
Total output value (A) ($380 * 12,700)		4,826,000
Materials value ($89 * 10,900)	970,100
Labor value ($24* 8,700)	208,800
Overhead value	1,360,000
Total value of input costs (B)		2,538,900
Total factor productivity (A/B)		1.901