Gamsharing Lindsay Cereal Company manufactures a line of breakfast cere¬ als. The production workers are part of a gainsharing program that works as follows. A target level of labor costs is set based on the achieved level of pro¬ duction. If the actual level of labor costs is less than the target level of labor costs, the difference is added to a cumulative pool that is carried from year to year. If the actual level of labor costs exceeds the target level, the amount of the excess is deducted from the cumulative pool.

If the balance of the pool is positive at the end of any year, the employees receive half the balance of the pool as part of a gainsharing plan and the bal¬ ance of the pool is reset to zero. If the balance of the pool is negative at the end of any year, the employees receive nothing and the negative balance is carried to the following year.

In any year when the target level of costs exceeds the actual level of costs, the target level for the following year is based on the actual level of cost performance in the previous year.

REQUIRED

(a) Suppose that the target level of performance is set using the following abor use standards: (1) 0.15 labor hours per case of cereal A (2) 0 10 labor hours per case of cereal B, (3) 0.20 labor hours per case of cereal C, and (4) 0.25 labor hours per case of cereal D.

430 Chapter 1 0 During the last year, production levels of cereal A, B, C, and D were 200,000 cases, 220,000 cases, 130,000 cases, and 240,000 cases, re¬ spectively. The company used 120,000 labor hours during the year, and the average cost of labor was $16 per hour. What is the amount available for distribution to employees under this gainsharing program?

(b) What do you like about this program?

(c) What do you dislike about it?

LO1