Pinnacle Company has been unhappy with the financial accounting variances that its cost accounting system has been producing, because its managers believe that there is more to evaluating an operation than just examining accounting numbers. Therefore, it has started gathering data to assist in the examination of nonfinancial results of operations. The following information relates to the manufacture of remote control units for televisions, radios, and stereo components:

Year 1 Year 2

Remote control units produced and sold 80,000 100,000

Direct manufacture labour-hours 12,000 13,200

Direct materials used (sets) 80,600 100,500

Direct manufacture cost per hour $18 $20

Direct materials cost per set $31 $32

Required:

1) What is the partial productivity of direct materials for each year? (6 marks)

2) What is the partial productivity of direct manufacturing labour for each year? (6 marks)

3) Did each area improve between Year 1 and Year 2? Explain. (3 marks)

4) What will be the projected direct material and labour needs for Year 3 if remote control units increase by 12,000 units, assuming Pinnacle Company applies the constant returns to scale technology?