At the end of 2011, Gilley Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase.Now, at the end of 2012, 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:
- By how much did profit change as a result of profitability changes in labor?

Question

At the end of 2011, Gilley Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase.Now, at the end of 2012, 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: 
- By how much did profit change as a result of profitability changes in labor?

Quizplus · Accepted Answer

To calculate the change in profit due to changes in labor, we need to calculate the change in input usage efficiency first. Input usage efficiency has increased by 5%, which means the company is able to produce the same output with 5% less labor. Therefore, the cost of labor has decreased by 5% of $500,000, which is $25,000.

Profit = Revenue - Cost
Old Profit = $1,150,000 - $500,000 = $650,000
New Profit = $1,250,000 - ($500,000 - $25,000) = $775,000

Change in Profit = New Profit - Old Profit
Change in Profit = $775,000 - $650,000 = $125,000

Therefore, the profit increased by $125,000 as a result of the changes in labor. The correct answer is choice D, $15,750 increase.

At the End of 2011, Gilley Company Implemented a New