CASE STUDY:Zychol Chemicals Corporation

Hi! I’m Bob Richards,

Production manager of Zychol

Chemicals, in Houston, Texas

Hello there! I’m Sharon Walford

and I’m the company’s Operations

Analyst

  2006 2007

Production (units) 4,500 6,000

Raw Material Used (barrels of petroleum by-products)

700 900

Labor Hours 22,000 28,000

Capital Cost Applied To The Department ($) 375,000 620,000

PRODUCTION DATA

Labor cost per hour

$13 per hour

$14 per hour

Average cost per barrel of raw

material$320 per

barrel

$360 per

barrel

Capital Cost

$375,000

$620,000

Prepare the productivity part of the report for Mr.

Richards.

• Both labor and material productivity increased

• Net result is a large negative change in productivity.

• The effect of accounting procedures is often beyond the control of managers.

What are the implications of the

change in the producer price index?

• reduces the negative impact onthe capital allocation

• material costs are still higher in 2007 after adjustment for inflation

• negative 5% growth in productivity remains

• increase in the capital base is responsible yet should not persist in future years

Did you

reach your

goal?