RFD Corporation makes small parts from steel alloy sheets. Management has the flexibility to substitute direct materials for direct manufacturing labor. If workers cut the steel carefully, more parts can be manufactured from a metal sheet, but this requires additional direct manufacturing labor-hours. Alternatively, RFD can use fewer direct manufacturing labor-hours if it is willing to tolerate more waste of direct materials. RFD provides this information for the years 2009 and 2010:

 

	2009	2010
Output units	400,000	486,000
Direct manufacturing labor-hours	10,000	13,500
Wages per hour	$26	$25
Direct materials used (tons)	160	180
Direct materials cost per ton	$3,375	$3,125

Required
Carry all computations to four digits after the decimal point.
1. Compute the partial financial productivity for both manufacturing factors for 2009 and 2010.
2. Calculate RFD's total productivity in units per dollar in 2009 and 2010.
3. Evaluate management's decision in 2010 to substitute one production factor foranother.

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3. The direct labor productivity per direct labor dollar decreased from 1.5385 units of output in 2009 to 1.44 in 2010. The direct materials productivity, however, improved from m anufacturing 0.7407 unit of output per direct materials dollar in 2009 to 0.864 in 2010. The decision to increase direct materials productivity (reduce direct materials wastes) at the expense of direct labor productivity is a right decision. The total productivity improved from 0.5 unit of output for each doll ar of the prime cost to 0.54 per dollar.