Solved: Gain sharing Sakura Snack Company

manufactures a line of snack

Gain sharing Sakura Snack Company manufactures a line of snack foods, such as cheese
crackers, granola bars, and cookies. The production workers are part of a gain-sharing program
that works as follows: A target level of labor costs is set that is based on the achieved level of
production. 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 gain-sharing plan, and the balance 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 labor use standards:
(1) 0.20 labor hour per case of snack food A, (2) 0.15 labor hour per case of snack food B, (3)
0.25 labor hour per case of snack food C, and (4) 0.10 labor hour per case of snack food D.
During the last year, production levels of snacks A, B, C, and D were 200,000 cases, 220,000
cases, 130,000 cases, and 240,000 cases, respectively. The company used 110,000 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 gain-sharing program, assuming no prior
balance in the pool?
(b) What do you like about this program?
(c) What do you dislike about it?

ANSWER
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