Information about Holm Corporation is as follows:
$\begin{array}{lrr}
&20 \times 1 & 20 \times 2\
\text { Output (units) } & 120,000 & 126,000 \
\text { Selling price per unit } & \$ 25 & \$ 25 \
\text { Input quantities: } & & \
\text { Materials (kg) } & 6,000 & 6,000 \
\text { Labour (hours) } & 4,800 & 4,825 \
\text { Input prices: } & & \
\text { Materials (per } \mathrm{kg} \text { ) } & \$ 5.00 & \$ 5.50 \
\text { Labour (per hour) } & \$ 7.00 & \$ 7.50
\end{array}$
-Refer to the figure.By how much did profits change as a result of changes in productivity related to materials?

Question

Quizplus · Accepted Answer

The change in productivity related to materials is the change in output per unit of materials used. In 20X1, Holm Corporation used 6,000 kg of materials to produce 120,000 units, while in 20X2, it used 6,000 kg of materials to produce 126,000 units. This represents an increase in productivity of 5%.The change in profits as a result of the change in productivity related to materials is equal to the change in output multiplied by the selling price per unit minus the change in input costs. The change in output is 6,000 units, and the selling price per unit is $25. The change in input costs is equal to the change in materials costs plus the change in labour costs. The change in materials costs is $3,000 (6,000 kg * $0.50), and the change in labour costs is $375 (25 hours * $15). Therefore, the change in profits is $1,650 (6,000 units * $25 - $3,000 - $375).

Information About Holm Corporation Is as Follows -Refer to the Figure