Strategic analysis of operating income. 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 2009 and 2010. 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 2009 and 820 distinct designs in 2010. At the start of 2010, Halsey planned to increase operating income by 10% over operating income in 2009.

1. Is Halsey’s strategy one of product differentiation or cost leadership? Explain.

2. Calculate Halsey’s operating income in 2009 and 2010.

3. Calculate the growth, price-recovery, and productivity components of changes in operating income between 2009 and 2010.

4. Does the strategic analysis of operating income indicate Halsey was successful in implementing its strategy in 2010? Explain.

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2010 40,000 $59 $41 51,000 customers 43,000 customers $296,700 $7 per customer $6.90 per customer 2009 1. Pieces of clothing purchased and sold 2. Average selling price 3. Average cost per piece of clothing 4. Selling and customer-service capacity 5. Selling and customer-service costs 6. Selling and customer-service capacity cost per customer (Line 5 + Line 4) 7. Purchasing and administrative capacity 8. Purchasing and administrative costs 9. Purchasing and administrative capacity cost per distinct design (Line 8 + Line 7) 40,000 S60 S40 S357,000 980 designs 850 designs $245,000 $250 per design $204,000 $240 per design