At the end of 2014, Diatomic Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2015, 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:
A) $540,000
B) $319,950
C) $220,050
D) $270,000

Question

At the end of 2014, Diatomic Company implemented a new labor process and redesigned its product with the expectation that input usage efficiency would increase. Now, at the end of 2015, 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: 
A) $540,000 
B) $319,950 
C) $220,050 
D) $270,000

Quizplus · Accepted Answer

The productivity change is calculated by dividing the output value in 2015 ($4,320,000) by the input value in 2015 ($1,350,000). This results in a productivity of 3.2. To determine the productivity change, we divide the 2015 productivity by the 2014 productivity. The 2014 productivity can be calculated by dividing the 2014 output value ($4,320,000) by the 2014 input value ($1,800,000), resulting in a productivity of 2.4. Dividing the 2015 productivity (3.2) by the 2014 productivity (2.4) results in a productivity change of 1.33. Multiplying this by the 2014 total labor cost ($240,000) results in a new total labor cost of $319,950, which is the difference in labor costs between the two years due to the increase in productivity. Therefore, the correct answer is B ($319,950).

At the End of 2014, Diatomic Company Implemented a New