At the end of 20X1,Carianne Corporation implemented a new labour process and redesigned its product with the expectation that input usage efficiency would increase.Now,at the end of 20X2,the president of the company wants an assessment of the changes on the company's productivity.The data needed for the assessment are as follows: $\begin{array}{lrr}
&\text {20X1}&\text {20X2}\
\text { Output (units) } & 20,000 & 24,000 \
\text { Selling price per unit } & \$ 10 & \$ 10\
\
\text { Change in profits}&\$22,200\
\text { Profit-linked measurements:}\
\text { Materials}&\$7,200\
\text { Iahour }&10,500\
\text { Power }&(1,500)
\end{array}$ What is the price-recovery component?
A)$22,200
B)$16,200
C)$6,000
D)($6,000)

Question

At the end of 20X1,Carianne Corporation implemented a new labour process and redesigned its product with the expectation that input usage efficiency would increase.Now,at the end of 20X2,the president of the company wants an assessment of the changes on the company's productivity.The data needed for the assessment are as follows: $\begin{array}{lrr}
&\text {20X1}&\text {20X2}\
\text { Output (units) } & 20,000 & 24,000 \
\text { Selling price per unit } & \$ 10 & \$ 10\
\
\text { Change in profits}&\$22,200\ 
\text { Profit-linked measurements:}\
\text { Materials}&\$7,200\
\text { Iahour }&10,500\
\text { Power }&(1,500)
\end{array}$ What is the price-recovery component?
A)$22,200
B)$16,200
C)$6,000
D)($6,000)

Quizplus · Accepted Answer

The price-recovery component is calculated as the change in profits not explained by cost savings or efficiency improvements. Here, the change in profits is $22,200, and the sum of profit-linked measurements (materials savings of $7,200, labour savings of $10,500, and power cost increase of $1,500) is $16,200. Subtracting these savings from the total change in profits ($22,200 - $16,200) gives a price-recovery component of $6,000.

At the End of 20X1,Carianne Corporation Implemented a New Labour