Reference no: EM132465461

Following a strategy of product differentiation, Calculate Inc. makes a hand held calculator, SPX 1000. Calculate Inc. presents the following data for the years 1 and 2:

Units of SPX 1000 produced and sold                       50,000                 55,000

selling price                                                           $40                       $46

Direct Materials (kilograms)                                    150,000               151,625

direct material cost per kilogram                                  $6.00                $6.50

manufacturing capacity for SPX 1000 (units)                   70,000             70,000

total manufacturing conversion cost                             $560,000          $630,000

manufacturing conversion cost per unit of capacity             $8.00                $9.00

selling & customer service capacity (customers)                     33                     31

Total selling and customer service costs                           $297,000             $294,500

Cost per customer of selling&customer service capacity         $9,000                    $9,500

Problem 1: Calculate Inc. produces no defective units but it wants to reduce direct materials usage per unit of SPX 1000 in year 2. Manufacturing conversion costs in each year depend on production capacity defined in terms of SPX 1000 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Neither conversion costs or customer-service costs are affected by changes in actual volume. Calculate Inc. has

• 23 customers in year 1 and 25 customers in year 2. The industry market size for hand held calculators increased 5% from year 1 to year 2. Of the $6 increase in unit selling price, $2 is due to a general increase in prices.

Required

Question 1: What is the operating income for Year 1?

Question 2: What is the operating income in Year 2?

Question 3: What is the change in operating income from Year 1 to Year 2?

Question 4: What amount is the revenue effect of the growth component?

Question 5: What amount is the cost effect of the growth component?

Question 6: What is the net effect on operating income as a result of the growth component?

Question 7: What amount is the revenue effect of the price-recovery component?

Question 8: What amount is the cost effect of the price-recovery component?

Question 9: What is the net change in operating income as a result of the price-recovery component?

Question 10: What is the net effect on operating income as a result of the productivity component?

Question 11: The change in operating income from cost leadership.

Question 12: The change in operating income due to industry wide effects.

Question 13: The effect of product differentiation on operating income and a summarization of the change in operating income between Year 1 to Year 2.