Deck 16: Operational Performance Measurement: Further Analysis of Productivity and Sales

Question 1

List benchmarks or criteria often used in assessing productivity, and discuss their advantages and disadvantages.

Answer 1

Productivity basically means the ratio between the output and the input volume. It is concerned with the use of both labor and capital in such a manner to get maximum output at best of resources. It also measures the efficiency of the production in terms of the output per unit of input in a specified period of time. Productivity is the crucial factor of production performance relates to the firms and the nation. There are various types of productivity like material productivity, labor productivity, capital productivity, and the total factor productivity.
These are the various criteria used in assessing productivity of the organization:
The most common labor productivity measure is gross domestic product (GDP) per worker. If the national productivity increases it means standard of living of the people increases as real income increases and accordingly more purchasing by the people of goods and service. It is also to be observed that more productivity result to more profitability for the business.
Basically productivity is the utilization of the labor, capital and the raw material in such a manner to increase the output of the firm and the productivity increase only when output ratio is more than the input ratio. Improvement in the technology also help to raise the levels of productivity and thereby increase the profitability of the company and also help to increase the income of the worker and thereby increasing GDP of the country.
There are various productivity measure used like multifactor productivity (MFP) which help to measure the growth in value added output per unit by implying per unit of labor and capital. Similarly, for the labor productivity (LP) it help to measure the growth in the value added output by implying per unit of input.
Example:
We can easily measure the labor productivity by output and the input ratio like if the company produces $100,000 value of goods or services that is output by spending 2,000 labor hour that is input. So by determining labor productivity company divide output to the input which $50 ($100,000 / 2,000 hour). Which indicates that company generates $50 per hour of the work. This can also be increased by increasing output by more trained to the worker so that with less number of hour, output can be increased.
Advantage of assessing productivity
-It help to measure the ratio between output in term of production and the input in term of the resources.
-It will help to build good plans for the future by analysis the result from the ratio.
It boost the morale of the management.
-This shows planning which is made by the management is going towards positive direction.
-It will motivate not only to the worker but also to the management.
-This will help to raise the income of the worker
-It help to raise the living standard of the worker.
-Study of the productivity helpful to the researcher that there research in the positive direction due to this production increases.
-It will help in the future planning for the management.
Disadvantage of assessing productivity
-It considered only output and the input but it does considered the other factor which affect the productivity.
-It is time consuming activity
-Sometimes human or worker assessment are subject to natural biases which result to errors in the study.
-Measurement of the productivity is sometime stressful in the business environment.
-It may also create dissatisfaction among the worker regarding insecurity for the employment.

Question 2

"A favorable sales quantity variance indicates that the marketing manager has done a good job." Do you agree Can you give an example in which a market size variance or market share variance is opposite to that of the sales quantity variance

Answer 2

Variances: Variance in costing means there is a difference between the real cost and the standard cost. Variance is related to both the cost element and the revenue element and they can be favorable or unfavorable.
Sales Variances: Sales Variance is the financial difference between the actual or real sales and the estimated sales. Sales variance is the change in the sales revenue arising due to the deviation in the actual sales price or the actual sales volume as compared to the budgeted sales price or the budgeted volume of units sold.
Yes , I do agree that a favorable sales quantity variance means that the sales manager has done a good job. Favorable sales quantity variance indicates that the company was able to sell a higher number of products in total as compared to the total number of units that was estimated in the budget as ought to be sold for that particular period. Such a situation arises only when concerted efforts are made by the sales manager. This favorable quantity variance is achieved by improving the marketing efforts for the purpose of boosting the sales. Sometimes the demand for the products in the market goes up but even in that situation the sales manager has to make concerted efforts in order to be able to face the tough competition and improve their sales.
The overall market for a particular product may have increased thereby leading to a favourable market size variance whereas the total aggregate quantity sold by the particular organization may have gone down due to various factors like cheaper substitutes available in the market, not able to market their products effectively or not able to increase its production and thereby meet the increased demand and various other reasons. In such a situation the sales quantity variance will be unfavorable. Thus the sales quantity variance and the market size variance are opposite.
The market share variance and the sales quantity variance can also be opposite of each other. When the market share increases but there is a simultaneous decrease in the overall market size for the product itself in a manner that inspite of the increase in the market share there is still a decrease in the aggregate number of units sold due to the market size going down. In such a situation the market share has a favorable variance but the sales quantity variance is unfavorable.

Question 3

Quality and Productivity Each summer the Harbour Report (www.oliverwyman.com/ow/ automotive.htm) rates the productivity of the major automakers, including the Detroit Big 3, Toyota, Honda, and many other brands. The report is closely watched as a barometer of the future profitability of the firms. However, some have argued that the productivity reports are insufficient. For example, a company can temporarily raise its productivity by laying off or "buying out" employees. Also, some would argue that the focus on productivity fails to draw attention to other key strategic factors such as quality, design, and customer service. For example, the J.D. Power organization (www.jdpower.com/autos) rates the initial quality of many new cars.
Required What do you think are the priorities for the auto companies: quality, productivity, customer service, design, or some other key strategic success factor Briefly explain your answer.

Answer 3

Flexible budget:
Flexible budget mean budget that is prepared for various level of outputs, thereby allowing analyst the analyse the revenue, cost and profit at various level of outputs. Flexible budget helps in analysing sales by enabling management to compare the actual sales with various budgets prepared as a part of flexible budget. Further, it allows analysis of productivity by helping management to identify the important drivers of productivity and change in their values with the change in underlying sales.
Discussion and analysis:
Following factors are required to the kept in mind while deciding of various success factors of an automotive company from strategic point of view-
1. The quality and design of the product allows a product to be accepted in the market by the customer. In long run, customer focuses on performance, appearance, built quality, and the features provided by the manufacturer in the car. Although, productivity is an important factor, but if the product is not accepted by the customer in the market, there will be no good use of such productivity.
2. Role of productivity also includes, improvement of design of the product, quality and performance in the long run. This is achieved as productivity helps in saving time and cost of production thereby allowing for alternate investment of such time and funds.
3. Productivity also covers the cost of quality control, rework and warranty. These costs form a significant amount in the cost of the product. With the help of savings from better productivity, these costs can be absorbed and even minimised due to better product quality.

Question 4

Sales Variances; Flexible-Budget Variance; Review of Chapter 14 Jay Banning, CEO and a major stockholder of Banning Inc., was unhappy with its operating results in 2013. The company manufactures two environmentally friendly industrial cleaning machines used primarily in automobile repair shops, gas stations, and auto dealerships. The master budget and operating results of the year (000s omitted except for the selling price per unit) follow:

Required
1. Compute the contribution margin flexible-budget variance, contribution margin sales volume variance, contribution margin sales quantity variance, and contribution margin sales mix variance for each product and for the firm.
2. Write a memo to Jay Banning about the implications of the variances that you just computed on the firm's strategy, planning, and operational control.

Question 5

What is operational productivity Financial productivity

Question 6

What are the relationships between market size variance, market share variance, sales quantity variance, and sales volume variance

Question 7

Productivity and the Economy The U.S. Bureau of Labor Statistics ( www.bls.gov ) provides quarterly data for productivity in business, nonfarm business, and manufacturing industries. The Bureau also breaks down these data into industry segments. The data for the annual percentage change in productivity for the recent decade is as follows, for the category of business productivity. Capital expenditure data are maintained by the Census Bureau, http://www.census.gov.

Required Economists argue that the changes in productivity are influenced by changes in the economy, for example, the economic downturn of 2000-2001 as well as the recent recession which started in 2008. Others argue that productivity is most affected by advances in and adoption of information technology, investments in research and development, and capital investment in new plant and equipment-more highly automated and efficient manufacturing facilities. The data above show that productivity was on the decline in the period 2005-2008 and improved again in 2009. In 2009, capital investment was sluggish as was the pace of innovation and adoption of information technology. Based on the above information and the data from the Census Bureau, what do you forecast the productivity change will be for 2010 and the following couple of years

Question 8

Sales Volume, Sales Quantity, and Sales Mix Variances Classic Ice Cream operates several stores in a major metropolitan city and its suburbs. Its budget and operating data for 2013 follow:

Required (in your calculations use 4 significant digits after the decimal point)
1. Compute these variances for the individual flavors and total sold:
a. Sales volume.
b. Sales mix. Extend the sales mix calculation to five decimal places.
c. Sales quantity.
2. Assess sales in 2013 based on your analyses.

Question 9

What is partial productivity Total productivity

Question 10

An improvement in earnings growth can be achieved at the expense of market share (an unfavorable market share variance). Do you agree

Question 11

Alternative Measures of Productivity A common measure of productivity, as explained in this chapter and as used by many business and trade organizations including the U.S. Bureau of Labor Statistics, is the ratio of output to input, where input is typically measured in units of materials, labor-hours, or related measures. An alternative is to use the ratio of capacity available to capacity utilized. For example, the amount of capacity in the U.S. manufacturing industries has almost doubled over the last two decades. However, the rate of capacity utilization (output/capacity available) has fallen slightly over this period of time, with a steep drop in 2009 followed by slow increases in 2010 and 2011. Some would say that this measure gives a better picture of productivity than the one we have used in the chapter.
Required Compare the measure of productivity based on capacity utilization with the measure used in the chapter. Which measure do you think is most useful for assessing the state of the manufacturing sector of the economy Explain briefly.

Question 12

Market Size and Share Variances Transpacific Airlines (TPA) budgeted 80 million passenger miles, or 5% of the total market for the year just completed, at a contribution margin of 40 cents per mile. The budgeted average price was 52 cents per passenger mile. The operating data for the year show that TPA flew 69.12 million passenger-miles with an average price of 48 cents per passenger-mile. The terrorist activity in the early part of the year in several countries in the region decreased the total miles flown by all airlines for the year by 10%. There is no flexible-budget variance for all costs.
Required
1. Assess the effects of price, sales volume, market size, and market share on the firm's operating results for the year.
2. Explain the risks posed by the global economic environment for TPA, and suggest strategies for mitigating those risks.

Question 13

"A financial productivity measure contains more information than an operational productivity measure does." Do you agree

Question 14

What is the R66 sales quantity variance
a. $400F
b. $1,000F
c. $1,200F
d. $3,000F
e. $3,600F
Use the following information for brief exercises 16-22. CompuWorld sells two products, R66 and R100, and calculates sales variances using contribution margin. Pertinent data for the current year follow:

Question 15

Productivity Measures for Call Centers Our examples in the chapter have focused on manufacturing, where the output is units of product and the inputs are manufacturing activities or costs. The concept of productivity can be applied in a variety of settings, wherever there are inputs and outputs. For example, consider the call center for a cell phone company. Suppose the call center operates 24 hours a day every day of the week to respond to user problems and questions. To calculate productivity for the call center, we could divide the total number of calls over a period of time by the number of hours or the number of employees in the call center during that period.
Required Evaluate the productivity measure identified above for the call center. Identify some alternative measures of productivity for the call center and explain your choices.

Question 16

Market Size and Market Share Variances for Small Business Diane's Designs is a small business run out of its owner's house. For the past six months, the company has been selling two products, a welcome sign and a birdhouse. The owner has been concerned about the company's marketing effectiveness. The master budget and actual results for March of this year follow:

The total market for welcome signs for the last six months are 3,000 budgeted and 3,000 actual. Diane expected the total market for birdhouses to be 200 units per month; the actual volume for the entire market, however, turned out to be only 175 units per month.
Required (rounding differences are acceptable)
1. Compare Diane's Designs' market share for welcome signs and birdhouses.
2. What is the market share contribution margin variance
3. What is the market size contribution margin variance
4. Explain possible reasons for these variances.

Question 17

"A total productivity measure encompasses all partial productivity measures." Do you agree

Question 18

What is the R100 sales mix variance
a. $20,000F
b. $30,000F
c. $35,000F
d. $40,000F
e. $70,000F
Use the following information for brief exercises 16-23. CompuWorld sells two products, R66 and R100, and calculates sales variances using contribution margin. Pertinent data for the current year follow:

Question 19

Sales Volume, Sales Quantity, and Sales Mix Variances The Greensboro Performing Arts Center (GPAC) has a total capacity of 7,500 seats: 2,000 center seats, 2,500 side seats, and 3,000 balcony seats. The budgeted and actual tickets sold for a Broadway musical show are as follows:

The actual ticket prices are the same as those budgeted. Once a show has been booked, the total cost does not vary with the total attendance.
Required Compute the following for the show (calculate mix percentage and unit contribution margin to four decimal places and round the variances to the nearest whole dollar):
1. The budgeted and actual sales mix percentages for different types of seats.
2. The budgeted average contribution margin per seat. Assume the ticket price is also the contribution margin.
3. The total sales quantity variance and the total sales mix variance.
4. The total sales volume variance.

Question 20

Market Size and Market Share Variances; Foreign Currency Fluctuations Tall Pines Brewery (TPB) makes two specialty beers in its microbrewery: Golden Ale and Dark Ale. Both beers sell for the same price per case in the U.S. market and in the export market. The latter market is primarily European countries. Both beers also have the same variable production costs, though the export product has slightly higher variable costs due to shipping and other distribution costs associated with the export beers. The price, cost, and market information for the two beers are shown below.

The budget was prepared with the expectation that the currency exchange rate would be $1.29 per euro. The actual average exchange rate for the period reflected the falling dollar, at $1.42 per euro.
Required (round all calculations to 4 decimal places after the decimal point)
1. What is the market share variance
2. What is the market size variance
3. Explain possible reasons for these variances, including a consideration of the effect of the change in the currency exchange rate for the dollar and the euro.

Question 21

"Partial productivity measures should be calculated only for high-value-added activities." Do you agree

Question 22

What is the total sales volume variance
a. $10,000F
b. $12,400F
c. $13,000F
d. $22,000F
e. $40,000F
Use the following information for brief exercises 16-24. CompuWorld sells two products, R66 and R100, and calculates sales variances using contribution margin. Pertinent data for the current year follow:

Question 23

Sales Variances; Year to Year Hathaway Products, Inc., produces an innovative lighting system used in restaurants and high-end retail stores to provide a pleasing, warm atmosphere. Hathaway produces two versions of the product, called Starlight and Moonlight. Sales management at Hathaway wants to complete a sales performance analysis and has collected the following information for 2012 and 2013.

Required
1. Calculate a flexible budget contribution income statement for 2013, showing the 2013 results, the 2012 results, and the flexible budget. Use Exhibit 16.15 as a guide.
2. Calculate the volume variances for each product based both on sales dollars and contribution margin.
3. Determine the sales volume variance, the sales mix variance, and the sales quantity variance for each product, based on contribution margin.
Reference:

Question 24

Comparative Income Statements and Sales Performance Variances; Current to Prior Year Clippers Inc. (CI) manufactures two types of garden clippers. A light duty model called the "halfinch" is intended for clipping branches and stems up to one-half inch thick. The "one-inch" model is designed for heavier stems and branches. To boost sales, CI decided at the beginning of 2013 to reduce the price of the half-inch model to better position its price relative to some key competitors. On the other hand, CI felt that the one-inch model was technically superior to competitors' models and decided that a small price increase was appropriate. The data for the current and prior year are as follows:

Required
1. Calculate a comparative contribution income statement for CI for 2013 that shows the volume and selling price variances for each product based on contribution margin. ( Hint: Use Exhibit 16.15 as an example.)
2. Determine the sales mix variance and the sales quantity variance for each product, based on contribution margin.
3. Did the price change have the expected results Why or why not

Question 25

Why do manufacturing personnel prefer operational productivity measures to financial productivity measures

Question 26

What is the market share variance
a. $8,000U
b. $11,200U
c. $40,000U
d. $50,000U
e. $70,000U
Use the following information for brief exercises 16-25. C. W. McCall sells a goldplated souvenir mug; McCall expects to sell 1,600 units for $45 each to earn a $25 contribution margin per unit. Janice McCall, president, expects the year's total market to be 32,000 units. For the year just completed, the local college won the national hockey championship, and the total market was 100,000 units. C. W. McCall sells 3,000 units and calculates sales variances using contribution margin.

Question 27

Partial Operational Productivity Hadley Technology Inc. manufactures a scrambling device for cellular telephones. The device's main component is a delicate part, CT140. CT140 is easily damaged and requires careful handling. Once damaged, it must be discarded. The firm hires only skilled laborers to manufacture and install CT140; however, some are still damaged. Robotic instruments process all other parts. Hadley's operating data for 2012 and 2013 follow:

Required
1. Compute the partial operational productivity for 2012 and 2013.
2. On the basis of the partial operational productivity that you computed, what conclusions can you draw about the firm's productivity in 2013 relative to 2012

Question 28

Comparative Income Statements and Sales Performance Variances; Current to Prior Year Green Grow Inc. manufactures riding lawn mowers that it sells to the large discount stores such as Walmart, Lowes, and Home Depot. The mowers are marketed as a "value" product, with good quality at a very good price. The company's two products are the Quality mower, which in 2012 sold for $1,200 (the discounters retailed it for $1,500), and the Heavy Duty model, which Green Grow Inc. sold for $1,600 (and was retailed for $2,200). At the end of 2012, the company has come under increased price competition from other manufacturers. The company believes it must reduce its price in 2013 on both products to keep its current market share with sales of 3,500 units. The unit variable costs for the Quality product are $800 and $950 for the Heavy Duty product. Management does not believe it can reduce these variable costs for the coming year but will begin to study ways to do so for 2014. In the meantime, the company management believes it can maintain its total market share by increasing its advertising expenses by $150,000 and cutting the price on both models by 10%. Fixed costs were $550,000 in 2012 and are not expected to change in 2013, with the exception of the increase in advertising. In 2012 the sales mix was 40% for Quality and 60% for Heavy Duty, respectively. In 2013, the sales mix was 50% for Quality and 50% for Heavy Duty, respectively.
Required
1. Calculate a comparative contribution income statement for Green Grow Inc. for 2013 that shows the volume and selling price variances for each product based on contribution margin. ( Hint: Use Exhibit 16.15 as an example.)
2. Determine the sales mix variance and the sales quantity variance for each product, based on contribution margin.
3. Did the price change and increase in advertising have the expected results Why or why not
4. What methods should Green Grow Inc. adopt to become more competitive in 2013 and 2014
Reference:

Question 29

"An activity productivity measure such as machine-hour productivity is more important in a JIT environment than in a non-JIT environment." Do you agree

Question 30

What is the market size variance
a. $51,000F
b. $68,000F
c. $71,400F
d. $85,000F
e. $119,000F
Use the following information for brief exercises 16-26. C. W. McCall sells a goldplated souvenir mug; McCall expects to sell 1,600 units for $45 each to earn a $25 contribution margin per unit. Janice McCall, president, expects the year's total market to be 32,000 units. For the year just completed, the local college won the national hockey championship, and the total market was 100,000 units. C. W. McCall sells 3,000 units and calculates sales variances using contribution margin.

Question 31

Partial Financial Productivity Use the data for Hadley Technology Inc. in problem 16-41 to complete the requirements.
Required (in your calculations use 6 significant digits after the decimal point)
1. Compute the partial financial productivity ratios for 2012 and 2013.
2. On the basis of the partial financial productivity ratios you computed, what conclusions can you draw about the firm's productivity in 2013 relative to 2012
3. Separate the change of the partial financial productivity ratio from 2012 to 2013 into productivity changes, input price changes, and output changes.
4. Does the detailed information provided by separating the change of the partial financial production ratio offer any additional insight into the relative productivity for 2012 and 2013
Reference:
Partial Operational Productivity Hadley Technology Inc. manufactures a scrambling device for cellular telephones. The device's main component is a delicate part, CT140. CT140 is easily damaged and requires careful handling. Once damaged, it must be discarded. The firm hires only skilled laborers to manufacture and install CT140; however, some are still damaged. Robotic instruments process all other parts. Hadley's operating data for 2012 and 2013 follow:

Required
1. Compute the partial operational productivity for 2012 and 2013.
2. On the basis of the partial operational productivity that you computed, what conclusions can you draw about the firm's productivity in 2013 relative to 2012

Question 32

Sales and Variable Cost Variances; Current to Prior Year; Review of Chapter 14 RJM Enterprises is a manufacturer of consumer electronics products. The industry is very competitive and RJM has seen its profits fall in recent years, including an operating loss of $18,585 in 2012. RJM was able to turn that around in 2013 by aggressively cutting costs. The summarized financial results for RJM are shown below.

Jim Green, the management accountant at RJM, is analyzing the company's performance for 2013, in order explain to management the specific aspects that drove the company to success. Some of the information Jim obtained is:

Assume that RJM, for efficiency and to reduce cost, maintains little or no materials or work in- process inventory.
Required
1. Determine the selling price variance for 2013 based on sales dollars. Determine the volume variance based on contribution margin.
2. Determine the variable cost variances:
a. The usage and price variances for materials.
b. The usage and rate variances for labor.
3. Interpret your findings in requirements 1 and 2 above.

Question 33

Which of the following statements is true (a) The lower the partial productivity ratio, the greater the productivity, (b) productivity improves when partial productivity increases, (c) prices of inputs are incorporated in the partial productivity ratio, (d) the partial productivity ratio measures the number of outputs produced per multiple input, and (e) more than one of the above is true.

Question 34

What is the firm's sales volume variance
a. $35,000F
b. $49,000F
c. $51,000F
d. $85,000F
e. $135,000F
Use the following information for brief exercises 16-27. C. W. McCall sells a goldplated souvenir mug; McCall expects to sell 1,600 units for $45 each to earn a $25 contribution margin per unit. Janice McCall, president, expects the year's total market to be 32,000 units. For the year just completed, the local college won the national hockey championship, and the total market was 100,000 units. C. W. McCall sells 3,000 units and calculates sales variances using contribution margin.

Question 35

Total Productivity Use the data for Hadley Technology Inc. in problem 16-41 for the following.
Required
1. Compute the total productivity ratios for 2012 and 2013.
2. On the basis of the total productivity that you computed, what conclusions can you draw about the firm's productivity in 2013 relative to 2012
Reference:
Partial Operational Productivity Hadley Technology Inc. manufactures a scrambling device for cellular telephones. The device's main component is a delicate part, CT140. CT140 is easily damaged and requires careful handling. Once damaged, it must be discarded. The firm hires only skilled laborers to manufacture and install CT140; however, some are still damaged. Robotic instruments process all other parts. Hadley's operating data for 2012 and 2013 follow:

Required
1. Compute the partial operational productivity for 2012 and 2013.
2. On the basis of the partial operational productivity that you computed, what conclusions can you draw about the firm's productivity in 2013 relative to 2012

Question 36

List important measures in assessing marketing effectiveness.

Question 37

Darwin, Inc., provided the following information for a production factor:
Required What is the partial operational productivity ratio of the production factor
a. 0.97 unit per gallon.
b. 1.02 units per gallon.
c. 1.06 units per gallon.
d. 1.12 units per gallon.
e. None of the above.

Question 38

Partial Operational and Financial Productivity In the fourth quarter of 2012 Simpson Company embarked on a major effort to improve productivity. It redesigned products, reengineered manufacturing processes, and offered productivity improvement courses. The effort was completed in the last quarter of 2012. The controller's office has gathered the following yearend data to assess the results of this effort.

Required (in your calculations use 6 significant digits after the decimal point)
1. Prepare a summary contribution approach income statement for each of the two years and calculate the change in operating income.
2. Compute the partial operational productivity ratios for each production factor in 2012 and 2013.
3. Compute the partial financial productivity ratios for each production factor in 2012 and 2013.
4. On the basis of the partial operational and financial productivity you computed, what conclusions can you make about the firm's productivity in 2012 relative to 2013
5. Separate the changes in the partial financial productivity ratio from 2012 to 2013 into productivity changes, input price changes, and output changes.
6. Discuss additional insight on the relative productivity between 2012 and 2013 from the detailed information provided by separating the change in the financial partial productivity ratios.

Question 39

What are the components of the sales variance

Question 40

Productivity and Strategy; Manufacturing To maintain profit growth, several manufacturing companies have responded to the recession by cutting jobs. Harley-Davidson reduced its workforce by 1,400 in 2010 and by an additional 1,600 in 2011. As sales have declined, the company has reduced labor capacity at many plants. The same is true at General Electric, Texas Instruments, Coca-Cola, and many other companies that have reduced capacity at certain plants, closed selected plants entirely, or dropped product lines. In many of these companies, the profits are held as cash, and the companies are holding off on making any new investments until economic conditions improve. Some analysts say the companies are just shrinking their operations to match the decline in expected future demand; the companies are profitable but smaller.
Required
1. Do the recent actions by these companies support their long-term strategies
2. How do the productivity gains at these companies affect profits in the short-term and long-term

Question 41

Partial Operational and Financial Productivity Varceles Design has decided to experiment with two alternative manufacturing approaches, identified as MF and LI, for producing men's fashions. The firm expects the total demand to be 20,000 suits. Management estimates the required input resources using different manufacturing approaches are:
The cost of materials is $8 per yard; the cost of labor is $25 per hour.
Required
1. Compute the partial operational productivity ratios for each of the production approaches. Which approach would you select based on the partial operational productivity ratios
2. Calculate the partial financial productivity ratios for each of the production approaches. Which approach would you select based on the partial financial productivity ratios
3. Compute the total productivity ratios for each of the production approaches. Which approach would you select based on the total productivity ratios

Question 42

Distinguish between a selling price variance and a sales volume variance.

Question 43

Productivity; Sustainability Telematics is a system of sensors installed on cars and trucks that provides current information on the status and operation of many of the vehicle's parts. It can be used to show the location of the vehicle, the oil level, the condition of the brake pads, whether all lights are working, and whether a seatbelt is buckled, among many other potential measures. United Parcel Service (UPS) uses telematics on nearly one-half of its 55,000-vehicle U.S. truck fleet.
Required
1. Describe what you think is UPS's strategy. Does telematics support UPS's strategy, and if so, how
2. How can telematics be used to improve productivity and sustainability at UPS

Question 44

Direct Labor Rate and Efficiency Variances; Productivity Measures; Review of Chapter 14 Textron Manufacturing Inc. assembles industrial testing instruments in two departments, assembly and testing. Operating data for 2012 and 2013 follow:

The firm assembled and tested 20,000 instruments in both 2012 and 2013.
Required (in your productivity calculations use 6 significant digits after the decimal point)
1. Calculate the direct labor rate and the efficiency variances for both departments in both years.
2. Calculate the direct labor partial operational productivity ratio for both departments in both years.
3. Calculate the partial financial productivity for both departments in both years.
4. Compare your answers for requirements 2 and 3. Comment on the results.
5. How do productivity measures offer different perspectives for the firm's strategic decisions from those of variance analysis

Question 45

What is the difference between a sales quantity variance and a sales volume variance

Question 46

Productivity and Quality Improvement in Retail Most manufacturers have long adopted quality improvement techniques to reduce or eliminate errors, defects, and waste and speed the flow of product to the consumer. Many retailers are now following the lead. For example, Best Buy was able to save approximately $20 million through a quality improvement program that streamlined the installation of appliances. Target has also adopted quality improvement as a means of reducing waste and cost in its retail operations.
Required How does quality improvement as described above differ from productivity

Question 47

Productivity and Market Share in the Auto Industry; Internet Exercise The following data were obtained from the recent financial statements for two U.S. automakers (in $millions).

Required
1. Calculate and interpret total productivity in dollars for the two automakers. Assume that total variable manufacturing costs are 80% of cost of goods sold for each automaker.
2. Go to the Internet for these companies and look under investor information to find the financial statements for each company. Review the sections on management's discussion and analysis and related financial statements and disclosures, and find the market size and market share information provided by these firms.
Ford: www.ford.com
GM: www.gm.com

Question 48

"As long as a firm sells more units than the units specified in the master budget, it will not have an unfavorable sales volume variance." Do you agree Why

Question 49

Partial Financial Productivity and Total Productivity ABC Corporation makes small parts from steel alloy sheets. Management has the flexibility to substitute direct materials for direct manufacturing labor. If workers cut the steel carefully, more parts can be manufactured from a metal sheet, but this requires additional direct manufacturing labor-hours. Alternatively, ABC can use fewer labor-hours if it is willing to tolerate more waste of direct materials. ABC decided to improve materials productivity in 2013 and the following provides information for 2012 and 2013:

Required Carry all computations to four digits after the decimal point.
1. Compute the partial financial productivity for both labor and materials for 2012 and 2013.
2. Calculate ABC's total productivity in units per dollar in 2012 and 2013.
3. Evaluate management's decision in 2013 to improve materials productivity.

Question 50

Productivity and Ethics Janice Interiors installs custom interiors for luxury mobile homes. In its most recent negotiation with the union, the firm proposed to share productivity gains in direct labor equally with the union. In return, the union agreed not to demand wage increases. Most union members, however, are skeptical about management's honesty in calculating productivity measures. Nevertheless, union members voted to try the program. Kim Tomas, the management accountant responsible for determining productivity measures, collected these data at the end of 2010:
Steve Janice, the CEO, is very anxious to demonstrate the firm's good intentions by showing the labor union a positive result. He suggests to Kim that some of the direct labor-hours are actually indirect. For example, some of the labor-hours are indirect because these hours cannot be allocated to specific types of work. Following his suggestion, Kim reclassifies 12,000 hours as indirect labor.
Required
1. Evaluate whether Steve's suggestion to reclassify some of the direct labor-hours as indirect labor is ethical.
2. Would it be ethical for Kim to modify her calculations

Question 51

What is productivity What does it measure

Question 52

What are the relationships among a selling price variance, a sales mix variance, a sales quantity variance, and a sales volume variance

Question 53

Partial Operational and Financial Productivity Software Solution (SOS) helps subscribers solve software problems. All transactions are made over the telephone. For the year 2012, 10 engineers, most of whom are recent graduates, handled 100,000 calls. The average yearly salary for software engineers was $45,000. Starting in 2013, the firm retained and hired only software engineers with at least two years of experience. SOS raised the engineers' salary to $60,000 per year. In 2013, eight engineers handled 108,000 calls.
Required
1. Calculate the partial operational productivity ratio for both years.
2. Calculate the partial financial productivity ratio for both years.
3. Did the firm make the right decision to hire only software engineers with at least two years' experience
4. List other factors that should be considered in making the decision.

Question 54

Partial Operational and Financial Productivity; Medical Practice Integrated Medical Care (IMC) is a family medical practice with 6 physicians and a nursing staff of 8 to 10 nurses and an administrative staff that varies from 4 to 7 personnel. Rajat Patel, the chief physician at IMC, is interested in studying the efficiency of the practice as a basis to set some benchmarks for further improvement, for rewarding his staff, and for comparing the efficiency of the IMC practice to other family medical practices. He is able to get comparable data for other practices from industry sources. So that the data are consistent with the industry sources, Patel has asked Marin Associates, his accounting firm, to develop a set of productivity measures that would satisfy this requirement. Upon investigation, Joseph Marin finds that the measures to be used are the partial financial and operational productivity measures as defined in the chapter. The following information is for the last two years for the IMC practice:


Required (in your calculations use 6 significant digits after the decimal point)
1. Compute the partial financial productivity ratios for nursing and administrative support for 2012 and 2013.
2. Separate the change of the partial financial productivity ratio from 2012 to 2013 into productivity changes, input price changes, and output changes.
3. Write a brief memo from Joseph Marin to Rajat Patel interpreting the findings above.

Question 55

Discuss why improving productivity is important for a firm that competes on a cost leadership strategy.

Question 56

Distinguish between market size variance and market share variance.

Question 57

Productivity: Which Way to Lean Lean manufacturing is what a lot of manufacturing firms are after these days. This means a renewed focus on productivity and profitability, particularly for firms that compete on a cost leadership strategy and are facing increased global low-cost competition. Adopting the right accounting approach to facilitate improvements in productivity is critical for these companies. Companies like Whirlpool, Pratt-Whitney (a unit of United Technologies), General Electric, and many other manufacturers are adopting the methods of lean manufacturing.
Required
1. How can productivity measures described in this chapter help a company to achieve lean manufacturing
2. The founding principles of lean manufacturing are based in part on the Toyota Production System. Explain the Toyota Production System and list its four main elements.

Question 58

Sales Variances; Flexible-Budget Variance; Review of Chapter 14 Robinson Company has two products, A and B. Robinson's budget for August follows:

On September l, these operating results for August were reported:

Required
1. For each product determine the following variances measured in contribution margin:
a. Flexible-budget variance.
b. Sales volume variance.
c. Sales quantity variance.
d. Sales mix variance.
2. Explain the amount of the flexible-budget variance using the amounts of the selling price and variable cost variances.