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. Now refer to the Income Statement in Chester's Annual Report. The direct labor costs for Chester were $32,680. These labor costs could have been $20,000 higher if investments in training that increased productivity had not been made. What was the productivity index for Chester that led to such savings?

Answer 1

Answer: 161.1%

Explanation:

Given that,

Direct labor costs for Chester = $32,680

Labor costs could have been $20,000 higher

Productivity index shows the ratio between the labor costs with improvements and labor costs without improvement in production.

Productivity Index = $\frac{Labor\ cost\ without\ improvement}{Labor\ cost\ with\ improvement}\times100$

                              = $\frac{32,680+20,000}{32,680}\times100$

                              = 161.1%