INTERPERIOD MEASUREMENT OF PRODUCTIVITY, PROFIT LINKED MEASUREMENT
Helena Company needs to increase its profits and so has embarked on a program to increase its overall productivity. After one year of operation, Kent Olson, manager of the Columbus plant, reported the following results for the base period and its most recent year of operations:
|
|
2006 |
2007 |
|
Output |
307,200 |
360,000 |
|
Power (quantity used) |
38,400 |
18,000 |
|
Materials (quantity used) |
76,800 |
81,000 |
Suppose the following input prices are provided for each year:
|
|
2006 |
2007 |
|
Unit price (power) |
$ 2 |
$ 3 |
|
Unit price (materials) |
16 |
15 |
|
Unit selling price |
6 |
8 |
Required:
1. Compute the profit linked productivity measure. By how much did profits increase due to productivity?
2. Calculate the price recovery component for 2007. Explain its meaning.