Analysis of growth, price-recovery, and productivity components. Winchester Corporation manufactures special ball bearings. In 2007, it plans to grow and increase operat¬

ing income by capitalizing on its reputation for manufacturing a product that is superior to its competitors’. An analysis ofWinchester’s operating income changes between 2006 and 2007 shows the following:

Operating income for 2006 $4,140,000 Add growth component 360,000 Add price-recovery component /A fffc 480,000 Add productivity component 420,000 Operating income for 2007 $5,400,000 fFurther analysis of these components indicates that the entire growth component is accounted for by an increase in the market size for ball bearings in 2007 and that 90%

of the price-recovery component is accounted for by an increase in the market prices scorecarD ^and strategic of ball bearings in 2007. Input prices did not change from 2006 to 2007.

Required 1. Is Winchester’s 2007 strategy one of product differentiation or cost leadership? Explain briefly.
2. Was Winchester’s gain in operating income in 2007 consistent with the strategy you identified in requirement 1? Explain briefly.
3. Assume the effect of the industry-marketing factor is $900,000 F. Illustrate Winchester’s performance in chart form and discuss the company’s performance based on their strategy of product differentiation, specifically with the increase in O.I. 2006 to 2007.