Halsey Company sells women€™s clothing. Halsey€™s strategy is to offer a wide selection of clothes and excellent customer service and to charge a premium price. Halsey presents the following data for 2012 and 2013. For simplicity, assume that each customer purchases one piece of clothing.

Total selling and customer-service costs depend on the number of customers that Halsey has created capacity to support, not the actual number of customers that Halsey serves. Total purchasing and administrative costs depend on purchasing and administrative capacity that Halsey has created (defined in terms of the number of distinct clothing designs that Halsey can purchase and administer). Purchasing and administrative costs do not depend on the actual number of distinct clothing designs purchased. Halsey purchased 930 distinct designs in 2012 and 820 distinct designs in 2013. At the start of 2013, Halsey planned to increase operating income by 10% over operating income in 2012.
REQUIRED
1. Is Halsey€™s strategy one of product differentiation or cost leadership? Explain.
2. Calculate the change in Halsey€™s operating income in 2012 and 2013.
3. Calculate the growth, price-recovery, and productivity components of changes in operating income between 2012 and 2013.
4. Does the strategic analysis of operating income indicate Halsey was successful in implementing its strategy in 2013? Explain.

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2012 2013 1. Pieces of clothing purchased and sold 2. Average selling price 3. 4. Selling and customer-service capacity 5. Selling and customer-service costs 6. Selling and customer-service capacity cost per customer $7 per customer S6.90 per customer 40,000 S59 40,000 $60 $40 51,000 customers S357,000 Average cost per piece of clothing 43,000 customers $296,700 (Line 5 ÷ Line 4) 7. Purchasing 8. Purchasing and administrative costs 9. Purchasing and administrative capacity cost per distinct 980 designs $245,000 $250 per design and administrative capacity 850 design:s $%204,000 $240 per design design (Line 8 ÷ Line 7)