Question :
41) When adequate capacity exists in the current year to : 1211787
41) When adequate capacity exists in the current year to produce next year’s output, the cost effect of growth for capacity-related fixed costs will be zero.
42) The price-recovery component of the change in operating income measures solely the effect of price changes on revenues and costs.
43) When analyzing the change in operating income, the strategy component of growth will increase when more units are sold.
44) The revenue effect of growth is calculated by multiplying the difference in units sold (current year minus the previous year) by selling price in the current year.
45) Cost effect of productivity for fixed costs is calculated by multiplying the difference in units of capacity (current year capacity units minus the previous year capacity units) by price per unit of capacity of the previous year.
46) The productivity component measures the amount by which operating income increases by using inputs efficiently to lower costs.
47) An increase in production capacity will always result in a favorable cost effect of productivity for variable costs in the short run.
48) An analysis of Ruthen Corporation’s operating income changes between 2015 and 2016 show the following:
Operating income for 2015$4,750,000
Add growth component180,000
Deduct price-recovery component(60,000)
Add productivity component285,000
Operating income for 2016$5,155,000
Required:
Is Ruthen’s operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly.
49) An analysis of Terbolt Corporation’s operating income changes between 2015 and 2016 show the following:
Operating income for 2015$4,750,000
Add growth component75,000
Add price-recovery component398,000
Deduct productivity component(50,000)
Operating income for 2016$5,173,000
Required:
Is Terbolt’s operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly.
50) Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:
20122013
Units of CM 7 produced and sold5,0005,500
Selling price$400$440
Direct materials (pounds)15,00015,375
Direct materials costs per pound$40$44
Manufacturing capacity for CM7 (units)10,00010,000
Conversion costs$1,000,000$1,100,000
Conversion costs per unit of capacity$100$110
Selling and customer-service capacity (customers)6058
Total selling and customer-service costs$360,000$362,500
Selling and customer-service capacity cost per customer$6,000$6,250
Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2013. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 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. Sting Corporation has 100 customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors increased 5% from 2012 to 2013.
Required:
a.What is operating income for 2012?
b.What is operating income in 2013?
c.What is the change in operating income from 2012 to 2013?
