Partial Operational and Financial Productivity In the fourth quarter of 2009 Simpson Company embarked on a major effort to improve productivity. It redesigned products, reengineered manufacturing processes, and offered productivity improvement courses. The effort was completed in the last quarter of 2009. The controller’s office has gathered the following year-end data to assess the results of this effort.
| 2010 | 2009 |
Units manufactured and sold | 18,000 | 15,000 |
Selling price of the product | $40 | $40 |
Materials used (pounds) | 12,600 | 12,000 |
Cost per pound of materials | $10 | $8 |
Labor-hours | 5,000 | 6,000 |
Hourly wage rate | $25 | $20 |
Power (kwh) | 2,000 | 1,000 |
Cost of power per kwh | $2 | $2 |
Required
1. Prepare a summary contribution approach income statement for each of the two years and calculate the change in operating income.
2. Compute the partial operational productivity ratios for each production factor in 2009 and 2010.
3. Compute the partial financial productivity ratios for each production factor in 2009 and 2010.
4. On the basis of the partial operational and financial productivity you computed, what conclusions can you make about the firm’s productivity in 2009 relative to 2010?
5. Separate the changes in the partial financial productivity ratio from 2009 to 2010 into productivity changes, input price changes, and output changes.
6. Discuss additional insight on the relative productivity between 2009 and 2010 from the detailed information provided by separating the change in the financial partial productivity ratios.
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