PRODUCTIVITY MEASUREMENT, BASICS Fowler Company produces handcrafted leather purses. Virtually all of the manufactur- ing cost consists of materials and labor. Over the past several years, profits have been declining because the cost of the two major inputs has been increasing. Wilma Fowler, the president of the company, has indicated that the price of the purses cannot be in- creased; thus, the only way to improve or at least stabilize profits is to increase overall productivity. At the beginning of 2007, Wilma implemented a new cutting and as- sembly process that promised less materials waste and a faster production time. At the end of 2007, Wilma wants to know how much profits have changed from the prior year because of the new process. In order to provide this information to Wilma, the con- troller of the company gathered the following data: 2006 2007 Unit selling price Purses produced and sold Materials used Labor used Unit price of materials Unit price of labor $16 18,000 36,000 9,000 $4 $9 $16 24,000 40,000 10,000 $4.50 $10 Required: 1. Compute the productivity profile for each year. Comment on the effectiveness of the new production process. 2. Compute the increase in profits attributable to increased productivity. 3. Calculate the price-recovery component, and comment on its meaning