In calculating the profit linkage, PQ represents the productivity-neutral quantity of input. How is PQ calculated?
A)PQ = Current period output / Base period output
B)PQ = Current period output / Base period productivity ratio
C)PQ = Prior period output / Base period productivity ratio
D)PQ = Current period output / Standard quantity output

Question

Quizplus · Accepted Answer

PQ is calculated as the current period output divided by the base period productivity ratio. This takes into account any changes in productivity over time and allows for an accurate calculation of profit linkage. A and D are not correct because they do not account for productivity changes, and C uses the prior period output instead of the current period output.

In Calculating the Profit Linkage, PQ Represents the Productivity-Neutral Quantity