Information about Harlequin Corporation is as follows: $\begin{array}{lcr}&2018&2019\
\text { Output (units) } & 40,000 & 42,000 \
\text { Selling price per unit } & \$ 25 & \$ 25\\
\text { Input quantities: }\
\text { Materials (pounds) }&2,000&2,000\
\text { Labor (hours) }&1,600&1,625\\
\text { Input prices: }\
\text { Materials (per pound) }&\$5.00&\$5.50\
\text { Labor (per hour) }&\$7.00&\$7.50
\end{array}$ By how much did profits change as a result of changes in productivity related to labor?
A)$550.00 decrease
B)$550.00 increase
C)$412.50 increase
D)$412.50 decrease

Question

Quizplus · Accepted Answer

To calculate the change in profits due to changes in productivity related to labor, we need to compare the labor costs per unit produced between the two years. For 2018, the labor cost per unit is calculated as follows: Total labor cost = 1,600 hours * $7.00/hour = $11,200Labor cost per unit = $11,200 / 40,000 units = $0.28/unitFor 2019, the labor cost per unit is calculated as follows: Total labor cost = 1,625 hours * $7.50/hour = $12,187.50Labor cost per unit = $12,187.50 / 42,000 units = $0.29/unitThe increase in labor cost per unit from 2018 to 2019 is $0.01. The change in profits due to changes in productivity related to labor is calculated as follows: Change in labor cost per unit * Number of units in 2019 = $0.01 * 42,000 units = $420However, the correct calculation for the change in labor productivity impact on profits should consider the actual productivity change rather than just the per unit cost increase. The correct approach involves comparing the expected labor cost at 2019 productivity levels with the actual labor cost.Expected labor cost for 2019 if 2018 productivity levels were maintained:2018 labor hours per unit = 1,600 hours / 40,000 units = 0.04 hours/unitExpected 2019 labor hours at 2018 productivity = 0.04 hours/unit * 42,000 units = 1,680 hoursExpected 2019 labor cost at 2018 productivity = 1,680 hours * $7.50/hour = $12,600Actual 2019 labor cost = 1,625 hours * $7.50/hour = $12,187.50Change in profits due to productivity = Expected 2019 labor cost - Actual 2019 labor cost = $12,600 - $12,187.50 = $412.50Therefore, the change in profits as a result of changes in productivity related to labor is a $412.50 increase.

Information About Harlequin Corporation Is as Follows By How Much Did Profits Change as a Result of (units)