Information about Cheng Corporation is as follows:
$\begin{array}{lrr}
&20 \times 1 & 20 \times 2\
\text { Output (units) } & 14,000 & 15,000 \
\text { Selling price per unit } & \$ 16 & \$ 16 \
\text { Input quantities: } & & \
\quad \text { Materials (kg) } & 1,750 & 1,900 \
\text { Labour (hours) } & 1,400 & 1,525 \
\text { Input prices: } & & \
\quad \text { Materials (per kg) } & \$ 3 & \$ 4 \
\quad \text { Labour (per hour) } & \$ 6 & \$ 7
\end{array}$
-Refer to the figure.By how much did profits change as a result of changes in productivity related to labour?
A)$175 decrease
B)$175 increase
C)$100 decrease
D)$100 increase

Question

Quizplus · Accepted Answer

The change in productivity related to labour can be calculated by comparing the cost of labour per unit in both years. In 20x1, the labour cost per unit is $(1,400 \text{ hours} \times \$6) / 14,000 \text{ units} = \$0.60$. In 20x2, it is $(1,525 \text{ hours} \times \$7) / 15,000 \text{ units} = \$0.71$. The increase in cost per unit is \$0.11. For 15,000 units, this results in an increased cost of $15,000 \times \$0.11 = \$1,650$. The profit decrease due to labour productivity change is $175.

Information About Cheng Corporation Is as Follows -Refer to the Figure