Carsen Company produces handcrafted pottery that uses two inputs: materials and labor. During the past quarter, 24,000
Question:
The cost of materials is $8 per pound; the cost of labor is $12 per hour.
Required:
1. Compute the output-input ratio for each input of Combination F1. Does this represent a productivity improvement over the current use of inputs? What is the total dollar value of the improvement? Classify this as a technical or an allocative efficiency improvement.
2. Compute the output-input ratio for each input of Combination F2. Does this represent a productivity improvement over the current use of inputs? Now, compare these ratios to those of Combination F1. What has happened?
3. Compute the cost of producing 24,000 units of output using Combination F1. Compare this cost to the cost using Combination F2. Does moving from Combination F1 to Combination F2 represent a productivity improvement? Explain.
Step by Step Answer:
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen