Power Company has been unhappy with the financial accounting variances that its cost accounting system has been producing, because its managers believe that there is more to evaluating an operation than just examining accounting numbers

Therefore, it has started gathering data to assist in the examination of nonfinancial results of operations. The following information relates to the manufacture of remote control units for televisions, radios, and stereo components:

2011 2012
Remote control units produced and sold 80,000 100,000
Direct manufacture labor-hours 12,000 13,200
Direct materials used (sets) 80,600 100,500
Direct manufacture cost per hour $18 $20
Direct materials cost per set $31 $32

Required:
a. What is the partial productivity of direct materials for each year?
b. What is the partial productivity of direct manufacturing labor for each year?
c. Did each area improve between 2011 and 2012? Explain.
d. What will be the projected direct material and labor needs for 2013 if remote control units increase by 12,000 units, assuming Power Company applies the constant returns to scale technology?

Answer:
a. 2011 Partial productivity of direct materials = 80,000/80,600 = 0.993
2012 Partial productivity of direct materials = 100,000/100,500 = 0.995

b. 2011 Partial productivity direct manufacturing labor = 80,000/12,000 = 6.67
2012 Partial productivity direct manufacturing labor = 100,000/13,200 = 7.58

c. Yes, both areas showed improvement because the ratios went up.

d. Production increase = 12,000/100,000 = 12 percent
Projected direct material sets = 100,500 × 1.12 = 112,560 sets
Projected direct manufacturing labor = 13,200 × 1.12 = 14,784 hours