Chapter15 pp ts

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Chapter15 pp ts

  1. 1. Cost Management ACCOUNTING AND CONTROLHANSEN & MOWEN 15-1
  2. 2. 15Productivity Measurement and Control 15-2
  3. 3. Productive Efficiency 1 Productivity is concerned with producing output efficiently, and it specifically addresses the relationship of output and the inputs used to produce the outputs. 15-3
  4. 4. Productive Efficiency 1Total productive efficiency is the point at which twoconditions are satisfied: (1) For any mix of inputs that will produce a given output, no more of any one input is used than necessary to produce the output. (2) Given the mixes that satisfy the first condition, the least costly mix is chosen. 15-4
  5. 5. Productive Efficiency 1 Technical Efficiency is the condition where no more of any one input is used than necessary to produce a given output. Technical efficiency improvement is when less inputs are used to produce the same output or more output are produced using the same input. 15-5
  6. 6. Productive Efficiency 1 15-6
  7. 7. Productive Efficiency 1 15-7
  8. 8. Productive Efficiency 1 15-8
  9. 9. Productive Efficiency 1 15-9
  10. 10. Productive Efficiency 1 Of the two combinations that produce the same output, the least costly combination would be chosen. 15-10
  11. 11. Partial Productivity Measurement 2Productive measurement— is a quantitative assessment of productivitychanges can be actual or prospective is forward looking serves as input for strategic decision making allows managers to compare relative benefits of different input combinations 15-11
  12. 12. Partial Productivity Measurement 2  Partial Productivity Measure: Measuring productivity for one input at a time.  Productivity ratio = Output/Input  Operational Productivity Measure: Partial measure where both input and output are expressed in physical terms.  Financial Productivity Measure: Partial measure where both input and output are expressed in dollars. 15-12
  13. 13. Total Productivity Measurement 3 2006 2007Number of frames produced 240,000 250,000Labor hours used 60,000 50,000Materials used (lbs.) 1,200,000 Productivity Measurement: Profile 1,150,000 Analysis, No Trade-Offs 240,000/60,000 250,000/50,000 250,000/1,150,000 240,000/1,200,000 15-13
  14. 14. Total Productivity Measurement 3 2006 2007Number of frames produced 240,000 250,000Labor hours used 60,000 50,000Materials used (lbs.) 1,200,000 Productivity Measurement: Profile 1,150,000 Analysis with Trade-Offs 250,000/50,000 250,000/1,300,000 15-14
  15. 15. Total Productivity Measurement 3Profit-Linkage Rule: For the current period,calculate the cost of the inputs that would have beenused in the absence of any productivity change, andcompare this cost with the cost of the inputs actuallyused. The difference in costs is the amount by whichprofits changed because of productivity changes. To compute the inputs that would have been used (PQ), use the following formula: PQ = Current-period Output/Base-period productivity ratio 15-15
  16. 16. Total Productivity Measurement 3 2006 2007Number of frames produced 240,000 250,000Labor hours used 60,000 50,000Materials used (lbs.) 1,200,000 1,300,000Unit selling price (frames) $30 $30Wages per labor hour $15 $15Cost per pound of material $3 $3.50 15-16
  17. 17. Total Productivity Measurement 3 PQ (labor) = 250,000/4 = 62,500 hrs. PQ (materials) = 250,000/0.200 = 1,250,000 lbs. Cost of labor: (62,500 x $15) = $ 937,500 Cost of materials: (1,250,000 x $3.50) = 4,375,000 Total PQ cost $5,312,500 The actual cost of inputs: Cost of labor: (50,000 x $15) = $ 750,000 Cost of materials: (1,300,000 x $3.50) = 4,550,000 Total current cost $5,300,000 15-17
  18. 18. Total Productivity Measurement 3Profit-linked effect = Total PQ cost – Total current cost = $5,312,500 – $5,300,000 = $12,500 increase in profits The net effect of the process change was favorable. Profits increased $12,500 because of productivity changes. 15-18
  19. 19. Total Productivity Measurement 3 Profit-Linked Productivity Measurement 250,000/4 250,000/0.200 15-19
  20. 20. Measuring Changes in Activityand Process Efficiency 4 Activity Productivity Model Output and Input Measures Output/Input Profile and Profit-Linked Analyses 15-20
  21. 21. Measuring Changes in Activityand Process Efficiency 4 2006 2007Number of purchase orders 200,000 240,000Material used (lbs.) 50,000 50,000Labor used (number of workers) 40 30Cost per pound of material $1 $0.80Cost (salary) per worker $30,000 $33,000 15-21
  22. 22. Measuring Changes in Activityand Process Efficiency 4 Activity Productivity Analysis Illustrated*Materials: 240,000/4; Labor: 240,000/5,000. 15-22
  23. 23. Measuring Changes in Activityand Process Efficiency 4 Process Productivity: Activity Output Efficiency Output and Input Measures Output/Input Profile and Profit-Linked Analyses 15-23
  24. 24. Measuring Changes in Activityand Process Efficiency 4 Productivity Data: Sales Process, Carthage Company Continued 15-24
  25. 25. Measuring Changes in Activityand Process Efficiency 4 Productivity Data: Sales Process, Carthage Company 15-25
  26. 26. Measuring Changes in Activityand Process Efficiency 4 Resource Efficiency Component (Activity Productivity)A. Making Sales Calls Continued 15-26
  27. 27. Measuring Changes in Activityand Process Efficiency 4 Resource Efficiency Component (Activity Productivity)B. Handling Objections 15-27
  28. 28. Measuring Changes in Activityand Process Efficiency 4 Activity Output Efficiency and Total Process ProductivityA. Activity Output Efficiency 20,000/50,000; 25,000/40,000. a b 20,000/25,000; 25,000/10,000. Continued 15-28
  29. 29. Measuring Changes in Activityand Process Efficiency 4 Activity Output Efficiency and Total Process ProductivityA. Activity Output Efficiency *25,000/0.4; 25,000/0.8. Note: P is the activity rate for 2007. Continued 15-29
  30. 30. Measuring Changes in Activityand Process Efficiency 4 Activity Output Efficiency and Total Process ProductivityB. Total Process Productivity 15-30
  31. 31. Measuring Changes in Activityand Process Efficiency 4 Improving quality may improve productivity. If rework is reduced by producing fewer defective units, thenless labor and few materials are used toproduce the same output. Reducing the number of defective units improves quality; reducing the amount of inputs used to improve productivity. 15-31
  32. 32. End ofChapter 15 15-32

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