Gain Sharing

Sakura Snack Company manufacturers a line of snack foods, such as cheese crackers, granola bars, and cookies. The production worders 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 hte pool is positive at the end of any year, hte employees receive half the balance of hte pool as part of a gain-sharing plan, and the balance of hte 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 tot he 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.

a. Suppose that the target level of performance is set using the following labor use standards:

1. .020 labor hour per case of snack food A

2) .15 labor hour per case of snack food B

3) .25 labor hour per case of snack food C

4) .10 labor hour per case of snack food D.

During the last year, production levels of snacks were:

A B C D

cases 200,000.00 220,000.00 130,000.00 240,000.00

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 proram, assuming no prior balance in the pool?

b. What do you like about this program?

c. What do you dislike about it?