Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen

Exercise 27

PRODUCTIVITY AND QUALITY, PROSPECTIVE ANALYSIS
Walnut Company is considering the acquisition of a computerized manufacturing system. The new systemhas a built-in quality function that increases the control over product specifications. An alarm sounds whenever the product falls outside the programmed specifications. An operator can then make some adjustments on the spot to restore the desired product quality. The system is expected to decrease the number of units scrapped because of poor quality. The systemis also expected to decrease the amount of labor inputs needed. The production manager is pushing for the acquisition because he believes that productivity will be greatly enhanced-particularly when it comes to labor and material inputs. Output and input data follow. The data for the computerized systemare projections.

Required:
1. Compute the partial operational ratios for materials and labor under each alternative. Is the production manager right in thinking that materials and labor productivity increase with the automated system?
2. Compute the productivity profiles for each system. Does the computerized system improve productivity?
3. Determine the amount by which profits will change if the computerized system is adopted. Are the trade-offs among the inputs favorable? Comment on the system's ability to improve productivity.