Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 41

Partial Financial Productivity Use the data for Frisen Communication Inc. in problem 16-39 to complete the requirements.

Required

1. Compute the partial financial productivity ratios for 2009 and 2010.

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2. On the basis of the partial financial productivity ratios you computed, what conclusions can you draw about the firm’s productivity in 2010 relative to 2009?

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3. Separate the change of the partial financial productivity ratio from 2009 to 2010 into productivity changes, input price changes, and output changes.

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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 2009 and 2010?

Step 1 of 4

1.,2.,3. See spreadsheet solution below:

					2010				2009
	Units manufactured				5,00,000				6,00,000
	Units of CSU10 used				8,00,000				8,25,000
Number of labor hours used			1,50,000				2,00,000
	Cost of CSU10 per unit				$156				$135
Direct labor wage rate per hour			$56				$63
	Total Materials Cost				124,800,000		=800,000 x $156/unit		$11,13,75,000
	Total Labor Cost				$84,00,000		=150,000 x $56/hr		$1,26,00,000
Total  Materials and Labor Cost			133,200,000		?		$12,39,75,000
Financial Partial Productivity
	Materials				0.004006		=500,000/124,800,000		0.005387
	Labor				0.059524		=500,000/8,400,000		0.047619
Operational Partial Productivity					?
	Materials				0.62500		=500,000/800,000		0.727273
	Labor				3.33333		=500,000/150,000		3.000000
Current Output at Prior Year Productivity					?
	Materials				6,87,500.00		=500,000/.727273
	Labor				1,66,666.67		=500,000/3.0
Decomposition of Partial Productivity (as done in Exhibit 16.5)					?
			A				B				C				D
	Output		Current output/				Current output/				Current output/				Prior output/
	Input Amount		Current Input x		Productivity		Cur. Ouptut at Prior Prod.		Input Price		Cur. Ouptut at Prior Prod.		Output		Prior Input x		Total
	Input Cost		Current input cost		Change		*Current input cost		Change		*Prior input cost		Change		Prior input cost		Change
	Output		5,00,000				5,00,000				5,00,000				6,00,000
	Input Amount
	Materials		8,00,000				6,87,500				6,87,500				8,25,000
	Labor		1,50,000				1,66,667				1,66,667				2,00,000
	Cost per unit of input
	Materials		$156				$156				$135				$135
	Labor		$56				$56				$63				$63
	Direct materials		0.004006		(0.000656)		0.004662		(0.000725)		0.005387		-		0.005387		(0.001381)
	Direct Labor		0.059524		0.005952		0.053571		0.005952		0.047619		-		0.047619		0.011905

1.?