/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Problem 43 Gable Company manufactures walle... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 12: Problem 43

Gable Company manufactures wallets from fabric. In 2016 , Gable made 2,160,000 wallets using 1,600,000 yards of fabric. In \(2016,\) Gable has capacity to make 2,448,000 wallets and incurs a cost of \(\$ 8,568,000\) for this capacity. In \(2017,\) Gable plans to make 2,203,200 wallets, make fabric use more efficient, and reduce capacity. Suppose that in 2017 Gable makes 2,203,200 wallets, uses 1,440,000 yards of fabric, and reduces capacity to 2,295,000 wallets at a cost of \(\$ 7,803,000\) 1\. Calculate the partial-productivity ratios for materials and conversion (capacity costs) for 2017 , and compare them to a benchmark for 2016 calculated based on 2017 output. 2\. How can Gable Company use the information from the partial-productivity calculations?

Short Answer

Expert verified
In 2017, Gable Company improved their materials partial-productivity ratio from the 2016 benchmark of 1.35 wallets per yard to 1.53 wallets per yard, indicating more efficient materials usage. However, the capacity costs partial-productivity ratio slightly decreased from 0.286 to 0.282 wallets per dollar. Gable Company can use this information to identify areas of improvement (materials efficiency), further optimize production costs (capacity costs), and enhance overall productivity.

Step by step solution

01

Calculate the 2017 partial-productivity ratios for materials and conversion (capacity costs)

To calculate the partial-productivity ratios for materials, use the formula: Partial-productivity ratio (Materials) = Total Output / Total Materials Used For the year 2017: Total Output: 2,203,200 wallets Total Materials Used: 1,440,000 yards Partial-productivity ratio (Materials) = 2,203,200 wallets / 1,440,000 yards = 1.53 wallets per yard For the conversion (capacity costs) partial-productivity ratio, use the formula: Partial-productivity ratio (Capacity costs) = Total Output / Total Capacity Costs For the year 2017: Total Capacity Costs: $7,803,000 Partial-productivity ratio (Capacity costs) = 2,203,200 wallets / $7,803,000 = 0.282 wallets per dollar
02

Calculate the 2016 benchmark based on 2017 output

First, we need to find the amount of materials and capacity costs for 2016, assuming the 2017 output level. Using the 2016 production information: Wallets per yard = 2,160,000 wallets / 1,600,000 yards = 1.35 wallets per yard Capacity costs per wallet = \(8,568,000 / 2,448,000 wallets = \)3.50 per wallet Now we can calculate the 2016 benchmark for materials based on the 2017 output level of 2,203,200 wallets. Total materials used (2016 benchmark) = 2017 Output / Wallets per yard (2016) = 2,203,200 wallets / 1.35 wallets per yard = 1,631,704 yards For capacity costs: Total capacity costs (2016 benchmark) = 2017 Output * Capacity costs per wallet (2016) = 2,203,200 wallets * \(3.50 per wallet = \)7,711,200 Now calculate the partial-productivity ratios: 2016 Benchmark (Materials) = 2,203,200 wallets / 1,631,704 yards = 1.35 wallets per yard 2016 Benchmark (Capacity costs) = 2,203,200 wallets / $7,711,200 = 0.286 wallets per dollar
03

Comparing 2017 partial-productivity ratios to the 2016 benchmark

Now we can compare the partial-productivity ratios calculated for materials and conversion (capacity costs) for 2017 to the 2016 benchmark. Materials Partial-productivity ratio: 2017: 1.53 wallets per yard 2016 Benchmark: 1.35 wallets per yard Capacity costs Partial-productivity ratio: 2017: 0.282 wallets per dollar 2016 Benchmark: 0.286 wallets per dollar
04

How Gable Company can use this information

From the calculated partial-productivity ratios, Gable Company can observe that they have made improvements in the materials ratio, going from 1.35 wallets per yard in 2016 to 1.53 wallets per yard in 2017. This shows that they have indeed made more efficient use of their materials in 2017 compared to 2016. However, the capacity costs partial-productivity ratio has slightly decreased from 0.286 wallets per dollar in the 2016 benchmark to 0.282 wallets per dollar in 2017. This could indicate that even though they reduced their capacity, the cost-saving measures were not as effective as they might have anticipated. By analyzing these partial-productivity calculations, Gable Company can identify areas where they have made improvements (materials efficiency) and areas where they may need to take further action to optimize their production costs (capacity costs). Gable Company can use this information to better manage future production strategies, target efficiency improvements, adopt cost-effective measures, and enhance overall productivity.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Cost Accounting
Cost accounting is a facet of management accounting that involves recording, analyzing, and summarizing costs incurred by a company. It provides detailed cost information that management needs to control current operations and plan for the future.

For instance, in the case of Gable Company, cost accounting would involve tracking the costs related to the manufacture of wallets, which includes the expense of fabric and capacity. In 2017, Gable Company aimed to improve cost efficiency and thus, cost accounting would focus on identifying areas such as materials and conversion costs, and measuring the impact of cost reduction strategies on the bottom line.

Importance of Cost Accounting

  • Cost Control: By understanding where money is spent, a company can control expenditure and improve profitability.
  • Decision Making: Cost accounting provides data that helps management make informed strategic decisions.
  • Pricing: Companies rely on cost accounting to set prices that cover costs and provide a profit margin.
  • Budgeting: It is a tool used for budgeting and for setting financial targets.
Understanding cost accounting enables businesses to optimize their operations, which is why Gable Company evaluates partial-productivity ratios as part of their cost assessment.
Efficiency Measurement
Efficiency measurement is the process of determining how well a company uses its resources to produce outputs. In the context of Gable Company, the partial-productivity ratios calculated for materials and conversion costs reflect the company's efficiency.

For 2017, the efficiency in material usage improved from 1.35 to 1.53 wallets per yard of material, indicating that Gable Company used its fabric more effectively. On the other hand, the capacity cost efficiency dipped slightly, suggesting that there may be room for further improvements.

Factors in Efficiency Measurement

  • Resource Utilization: Evaluating how effectively resources are used in production.
  • Process Optimization: Streamlining operations to reduce waste and increase output.
  • Technology Integration: Leveraging technology to enhance efficiency.
  • Employee Performance: Assessing work quality and productivity of the staff.
Efficiency measurement is critical because it pinpoints strengths and areas requiring attention. For Gable, this analysis aids in decision-making, helping to direct future investments towards greater efficiency and profitability.
Production Costs
Production costs are the expenses incurred by a company to manufacture its goods. These costs include a wide array of expenses including but not limited to materials, labor, overhead, and capacity costs.

Regarding Gable Company, the production costs revolve around the materials (fabric) and the capacity to produce wallets. The company aims to lower these costs while maintaining or increasing output. In 2017, Gable reduced its capacity costs from \(8,568,000 to \)7,803,000 while making efforts to utilize materials more efficiently.

Components of Production Costs

  • Direct Materials: Raw materials that can be traced directly to the finished product.
  • Direct Labor: Wages of employees who are directly involved in the production.
  • Manufacturing Overhead: Indirect costs related to production that cannot be traced to a specific product.
Controlling production costs is essential for maintaining competitiveness in the market. By exploring partial-productivity ratios, Gable Company assesses whether their efforts in cost management are yielding the intended benefits, such as reducing overall production costs while improving efficiency.

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What are four key perspectives in the balanced scorecard?

Describe the five key forces to consider when analyzing an industry.

Following is a random-order listing of perspectives, strategic objectives, and performance measures for the balanced scorecard. $$\begin{array}{ll} \text { Perspectives } & \text { Performance Measures } \\ \hline \text { Internal business process } & \text { Percentage of defective- product units } \\ \text { Customer } & \text { Return on assets } \\ \text { Learning and growth } & \text { Number of patents } \\ \text { Financial } & \text { Employee turnover rate } \\ \text { Strategic 0bjectives } & \text { Net income } \\ \hline \text { Acquire new customers } & \text { Customer profitability } \\ \text { Increase shareholder value } & \text { Percentage of processes with real-time feedback } \\ \text { Retain customers } & \text { Return on sales } \\ \text { Improve manufacturing quality } & \text { Average job-related training-hours per employee } \\ \text { Develop profitable customers } & \text { Return on equity } \\ \text { Increase proprietary products } & \text { Percentage of on-time deliveries by suppliers } \\ \text { Increase information-system capabilities } & \text { Product cost per unit } \\ \text { Enhance employee skills } & \text { Profit per salesperson } \\ \text { 0n-time delivery by suppliers } & \text { Percentage of error-free invoices } \\ \text { Increase profit generated by each salesperson } & \text { Customer cost per unit } \\ \text { Introduce new products } & \text { Earnings per share } \\ \text { Minimize invoice-error rate } & \text { Number of new customers } \\ & \text { Percentage of customers retained } \end{array}$$ For each perspective, select those strategic objectives from the list that best relate to it. For each strategic objective, select the most appropriate performance measure(s) from the list

Why might an analyst incorporate the industry-market-size factor and the interrelationships among the growth, price-recovery, and productivity components into a strategic analysis of operating income?

Gianni \& Sons buys T-shirts in bulk, applies its own trendsetting silk-screen designs, and then sells the T-shirts to a number of retailers. Gianni wants to be known for its trendsetting designs, and it wants every teenager to be seen in a distinctive Gianni T-shirt. Gianni presents the following data for its first two years of operations, 2016 and 2017 . Administrative costs depend on the number of customers Gianni has created capacity to support, not on the actual number of customers served. Gianni had 3,600 customers in 2016 and 3,500 customers in 2017 1\. Is Gianni's strategy one of product differentiation or cost leadership? Explain briefly. 2\. Describe briefly the key measures Gianni should include in its balanced scorecard and the reasons for doing so.
See all solutions

Recommended explanations on Math Textbooks

Statistics

Read Explanation

Decision Maths

Read Explanation

Applied Mathematics

Read Explanation

Discrete Mathematics

Read Explanation

Geometry

Read Explanation

Calculus

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.