Strategic analysis of operating income. Ronaldo Associates is a construction engineering firm that prepares detailed construction drawings for single-family homes. The market for this service is very competitive. To compete successfully Ronaldo must deliver quality service at low cost. Ronaldo presents the following data for 2016 and 2017.

Engineering labor-hour costs are variable costs. Engineering support costs for each year depend on the engineering support capacity that Ronaldo chooses to maintain each year (that is, the number of jobs it can do each year). Engineering support costs do not vary with the actual number of jobs done in a year.
Required 1. Calculate the operating income of Ronaldo Associates in 2016 and 2017.
2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2016 to 2017.
3. Comment on your answer in requirement 2. What do these components indicate?

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1. Number of jobs billed 2. Selling price per job 3. Engineering labor-hours 4. Cost per engineering labor-hour 5. Engineering support capacity (number of jobs the firm can do) 6. Total cost of engineering support (space rent, equipment, etc.) 7. Engineering support-capacity cost per job (row 6 row 5) 2016 400 2017 500 $ 3,100 $ 3,200 24,000 27,000 $ 35 $ 36 600 600 $180,000 $192,000 $ 300 $ 320