A productivity index of 110% means that a company’s labor costs would have been 10% higher if it had not made production improvements. Assume that Baldwin had a productivity index of 112% and that Chester had a productivity index of 103%. Now refer to the Income Statements in the Annual Report for Baldwin and Chester. Using the labor costs shown in the Income Statements, how much more did Baldwin save in direct labor costs compared to Chester by having a higher productivity index?
Answers
Answer:
The higher amount saved by B than C due to high productivity is c. $3,188.01.
Explanation:
Productivity: Productivity is the amount of work completed in a given amount of time. It is determined by the total amount of work completed during that time period. For a business to be profitable, productivity must be understood and controlled.
Assuming that the missing direct labor costs for B and C are $32,611 and $24,177, respectively, we get the following:
B labor cost savings = B labor cost * (Productivity index - 100) = $32,611*(112-100) = $3,913.32
C saved as a result of the productivity index = C labor cost * (Productivity index - 100) = $24,177 * (103 - 100) = $725.31
More savings of B than savings of C = $3,913.32 - $725.31 = $3,188.01
As a result, the greater amount saved by B than C due to high productivity is approximately $3,188.01.
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