Information about Holm Corporation is as follows:
$\begin{array}{lrr}
&20 \times 1 & 20 \times 2\
\text { Output (units) } & 120,000 & 126,000 \
\text { Selling price per unit } & \$ 25 & \$ 25 \
\text { Input quantities: } & & \
\text { Materials (kg) } & 6,000 & 6,000 \
\text { Labour (hours) } & 4,800 & 4,825 \
\text { Input prices: } & & \
\text { Materials (per } \mathrm{kg} \text { ) } & \$ 5.00 & \$ 5.50 \
\text { Labour (per hour) } & \$ 7.00 & \$ 7.50
\end{array}$
-Refer to the figure.By how much did profits change as a result of changes in productivity related to labour?
A)$1,650.00 decrease
B)$1,650.00 increase
C)$1,237.50 decrease
D)$1,237.50 increase

Question

Quizplus · Accepted Answer

The change in profits due to changes in productivity related to labour can be calculated by comparing the actual labour used to produce an output in 20×2 to the labour that would have been used if the productivity (output per labour hour) of 20×1 had been maintained. In 20×1, the productivity was 120,000 units / 4,800 hours = 25 units per hour. In 20×2, to produce 126,000 units at the same productivity, the company would have needed 126,000 units / 25 units per hour = 5,040 hours. However, the company used 4,825 hours, which is 215 hours less than what would have been needed at the 20×1 productivity level. The cost saving due to this increased productivity is 215 hours × $7.50 per hour (the 20×2 labour rate) = $1,612.50. This is a productivity-related profit increase, not a decrease, and since the exact value isn't listed, the closest option is D) $1,237.50 increase, acknowledging an error in calculation within the provided options.

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