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2006 2007 Production (units) 4,500 Raw material used {ban-e15 of petroleum lay-products) Capital cost applied to the department {35) $375,000 $620,000 Bob knew that his labor cost per hour had increased from an average of $13 per hour to an
average of $14 per hour, primarily due to a move by management to become more competitive
with a new company that had just opened a plant in the area. He also knew that his average cost
per barrel of raw material had increased from $320 to $360. He was concerned about the
accounting procedures that increased his capital cost from $375,000 to $620,000. but earlier discussions with his boss suggested that there was nothing that could be done about that
allocation. Bob wondered if his productivity had increased at all. He called Sharon into the office and
conveyed the above infom'lation to her and asked her to prepare this part of the report. Discussion Questions 1. Prepare the productivity part of the report for Mr. Richards. He probably expects some analysis
of productivity inputs for all factors. as well as a multifactor analysis for both years with the
change in productivity (up or down) and the amount noted. 2. The producer price index had increased from 120 to 125. and this fact seemed to indicate to
Mr. Richards that his costs were too high. What do you tell him are the implications of this change
in the producer price index? 3. Management's expectation for departments such as Mr. Richards's is an annual productivity

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