15-1 HANSEN & MOWEN Cost Management ACCOUNTING AND CONTROL.
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Transcript of 15-1 HANSEN & MOWEN Cost Management ACCOUNTING AND CONTROL.
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HANSEN & MOWENHANSEN & MOWEN
Cost ManagementCost ManagementACCOUNTING AND CONTROLACCOUNTING AND CONTROL
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Productivity Measurement and ControlProductivity Measurement and Control
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Productive EfficiencyProductive Efficiency 1
Productivity is concerned with producing output
efficiently, and it specifically addresses the relationship of output and the inputs used to produce
the outputs.
Productivity is concerned with producing output
efficiently, and it specifically addresses the relationship of output and the inputs used to produce
the outputs.
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Total productive efficiency is the point at which two conditions are satisfied:
(1) For any mix of inputs that will produce a given output, no more of any one input is used than necessary to produce the output.
(2) Given the mixes that satisfy the first condition, the least costly mix is chosen.
Productive EfficiencyProductive Efficiency 1
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Technical Efficiency is the condition where no more of any one input is used than necessary to produce a given output.
Technical efficiency improvement is when less inputs are used to produce the same output or more output are produced using the same input.
Productive EfficiencyProductive Efficiency 1
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Productive EfficiencyProductive Efficiency 1
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Productive EfficiencyProductive Efficiency 1
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Productive EfficiencyProductive Efficiency 1
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Productive EfficiencyProductive Efficiency 1
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Productive EfficiencyProductive Efficiency 1
Of the two combinations that produce the same output, the least costly combination would be chosen.
Of the two combinations that produce the same output, the least costly combination would be chosen.
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Productive measurement—
is a quantitative assessment of productivity changes
can be actual or prospective
is forward looking
serves as input for strategic decision making
allows managers to compare relative benefits ofdifferent input combinations
Partial Productivity MeasurementPartial Productivity Measurement 2
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Partial Productivity Measure: Measuring productivity for one input at a time.
Productivity ratio = Output/Input
Operational Productivity Measure: Partial measure where both input and output are expressed in physical terms.
Financial Productivity Measure: Partial measure where both input and output are expressed in dollars.
Partial Productivity MeasurementPartial Productivity Measurement 2
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2006 2007
Number of frames produced 240,000250,000
Labor hours used 60,00050,000
Materials used (lbs.) 1,200,0001,150,000Productivity Measurement: Profile Productivity Measurement: Profile
Analysis, No Trade-OffsAnalysis, No Trade-Offs
Productivity Measurement: Profile Productivity Measurement: Profile Analysis, No Trade-OffsAnalysis, No Trade-Offs 250,000/50,000250,000/50,000
250,000/1,150,000250,000/1,150,000240,000/60,000240,000/60,000240,000/1,200,000240,000/1,200,000
Total Productivity MeasurementTotal Productivity Measurement 3
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2006 2007
Number of frames produced 240,000250,000
Labor hours used 60,00050,000
Materials used (lbs.) 1,200,0001,150,000Productivity Measurement: Profile Productivity Measurement: Profile
Analysis with Trade-OffsAnalysis with Trade-Offs
Productivity Measurement: Profile Productivity Measurement: Profile Analysis with Trade-OffsAnalysis with Trade-Offs 250,000/50,000250,000/50,000
250,000/1,300,000250,000/1,300,000
Total Productivity MeasurementTotal Productivity Measurement 3
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Profit-Linkage Rule: For the current period, calculate the cost of the inputs that would have been used in the absence of any productivity change, and compare this cost with the cost of the inputs actually used. The difference in costs is the amount by which profits changed because of productivity changes.
To compute the inputs that would have been used (PQ), use the following formula:
PQ = Current-period Output/Base-period productivity ratio
Total Productivity MeasurementTotal Productivity Measurement 3
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Number of frames produced 240,000250,000
Labor hours used 60,000 50,000
Materials used (lbs.) 1,200,0001,300,000
Unit selling price (frames) $30$30
Wages per labor hour $15$15
Cost per pound of material $3$3.50
2006 2007
Total Productivity MeasurementTotal Productivity Measurement 3
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PQ (labor) = 250,000/4 = 62,500 hrs.
PQ (materials) = 250,000/0.200 = 1,250,000 lbs.
Cost of labor: (62,500 x $15) = $ 937,500
Cost of materials: (1,250,000 x $3.50) = 4,375,000
Total PQ cost $5,312,500
Cost of labor: (50,000 x $15) = $ 750,000
Cost of materials: (1,300,000 x $3.50) = 4,550,000
Total current cost $5,300,000
The actual cost of inputs:
Total Productivity MeasurementTotal Productivity Measurement 3
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Profit-linked effect = Total PQ cost – Total current cost
= $5,312,500 – $5,300,000
= $12,500 increase in profits
The net effect of the process change was favorable. Profits increased $12,500 because of
productivity changes.
Total Productivity MeasurementTotal Productivity Measurement 3
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Total Productivity MeasurementTotal Productivity Measurement 3
Profit-Linked Productivity MeasurementProfit-Linked Productivity MeasurementProfit-Linked Productivity MeasurementProfit-Linked Productivity Measurement
250,000/4250,000/0.200
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Output and Input Measures
Output/Input
Profile and Profit-Linked Analyses
4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Activity Productivity ModelActivity Productivity ModelActivity Productivity ModelActivity Productivity Model
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Number of purchase orders 200,000240,000
Material used (lbs.) 50,00050,000
Labor used (number of workers) 4030
Cost per pound of material $1$0.80
Cost (salary) per worker $30,000$33,000
2006 2007
4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
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Activity Productivity Analysis IllustratedActivity Productivity Analysis IllustratedActivity Productivity Analysis IllustratedActivity Productivity Analysis Illustrated
4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
*Materials: 240,000/4; Labor: 240,000/5,000.
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Output and Input Measures
Output/Input
Profile and Profit-Linked Analyses
4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Process Productivity: Activity Output EfficiencyProcess Productivity: Activity Output EfficiencyProcess Productivity: Activity Output EfficiencyProcess Productivity: Activity Output Efficiency
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4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Productivity Data: Sales Process, Carthage CompanyProductivity Data: Sales Process, Carthage CompanyProductivity Data: Sales Process, Carthage CompanyProductivity Data: Sales Process, Carthage Company
ContinuedContinued
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4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Productivity Data: Sales Process, Carthage CompanyProductivity Data: Sales Process, Carthage CompanyProductivity Data: Sales Process, Carthage CompanyProductivity Data: Sales Process, Carthage Company
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4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Resource Efficiency Component (Activity Productivity)Resource Efficiency Component (Activity Productivity)Resource Efficiency Component (Activity Productivity)Resource Efficiency Component (Activity Productivity)
A. Making Sales Calls
ContinuedContinued
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4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Resource Efficiency Component (Activity Productivity)Resource Efficiency Component (Activity Productivity)Resource Efficiency Component (Activity Productivity)Resource Efficiency Component (Activity Productivity)
B. Handling Objections
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4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Activity Output Efficiency and Activity Output Efficiency and Total Process Productivity Total Process Productivity
Activity Output Efficiency and Activity Output Efficiency and Total Process Productivity Total Process Productivity
A. Activity Output Efficiency
ContinuedContinued
a20,000/50,000; 25,000/40,000.
b20,000/25,000; 25,000/10,000.
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4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Activity Output Efficiency and Activity Output Efficiency and Total Process Productivity Total Process Productivity
Activity Output Efficiency and Activity Output Efficiency and Total Process Productivity Total Process Productivity
A. Activity Output Efficiency
ContinuedContinued
*25,000/0.4; 25,000/0.8.
Note: P is the activity rate for 2007.
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4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
Activity Output Efficiency and Activity Output Efficiency and Total Process Productivity Total Process Productivity
Activity Output Efficiency and Activity Output Efficiency and Total Process Productivity Total Process Productivity
B. Total Process Productivity
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Improving quality may improve productivity. If rework is reduced by producing fewer defective units, then
less labor and few materials are used to produce the same output. Reducing the
number of defective units improves quality; reducing the amount of inputs
used to improve productivity.
4Measuring Changes in Activity Measuring Changes in Activity and Process Efficiencyand Process Efficiency
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End of End of Chapter 15Chapter 15