A productivity index of 110% means that a company’s labor costs would have been

Question

A productivity index of 110% means that a company’s labor costs would have been 10% higher if it had not made production improvements. Assume that Digby had a productivity index of 112% and that Baldwin had a productivity index of 103%. Now refer to the Income Statements in the Annual Report for Digby and Baldwin. Using the labor costs shown in the Income Statements, how much more did Digby save in direct labor costs compared to Baldwin by having a higher productivity index? Select: 1 $3,181 $3,340 $3,499 $2,863

Explanation / Answer

Direct labor cost of Baldwin is $32611

Direct cost of Baldwin would have been higher by = 12%*32611

=$3913.32

Direct labor cost of Chester is $24177

Direct cost of Chester would have been higher by = 3%*24177

=$725.31

Therefore, money saved by Baldwin = $(3913.32-725.31)

=$3188.01

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