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13-30 Strategic analysis of operating income. Dransfield Company manufactures an electronic LO 4 component, ZP98. This component is significantly less expensive than similar products sold
13-30 Strategic analysis of operating income. Dransfield Company manufactures an electronic LO 4 component, ZP98. This component is significantly less expensive than similar products sold by Dransfield's 1. Change in operating in competitors. Order-processing time is very short; however, approximately 10% of products are defective $36,820 F and returned by the customer. Returns and refunds are handled promptly. Yorunt Manufacturing, Drans- field's main competitor, has a higher-priced product with almost no defects but a longer order-processing time. Assume that in 2019, Dransfield has changed its processes and trained workers to recognize quality problems and fix them before products are finished and shipped to customers. Quality is now at an accept- able level. Cost per kilogram of materials is about the same as before, but conversion costs are higher, and Dransfield has raised its selling price in line with the market. Sales have increased and returns have decreased. Dransfield's managers attribute this to higher quality and a price that is still less than Yorunt's. Information about the current period (2019) and last period (2018) follows. 2018 2019 EXCEL 1a. Units of ZP98 produced and sold 5,000 6,250 1b. Units of ZP98 returned 500 225 1c. Net sales in units 4,500 6,025 2. Selling price $44 $50 3. Direct materials (kilograms) used 2,500 3,125 4. Direct materials cost per kilogram $10 $10 5. Manufacturing capacity in units of ZP98 8,000 8,000 6. Total conversion costs $128,000 $184,000 7. Conversion cost per unit of capacity $16 $23 8. Selling and customer-service capacity 60 customers 60 customers 9. Total selling and customer-service costs $4,000 $4,180 10. Selling and customer-service capacity cost per customer $66.67 $69.67 11. Advertising staff 1 12. Total advertising costs $20,000 $24,000 13. Advertising cost per employee $20,000 $24,000Conversion costs in each year depend on production capacity dened in terms of ZPSB units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Drsnstield can support, not the actual number of customers it serves. Dransfield has 50 customers in 2018 and 60 customers in 2019. At the start of each year. management uses its discre- tion to determine the number of advertising staff for the year. Advertising staft and its costs have no direct relationship with the quantity of ZPBB units produced and sold or the number of customers who but}r zrac. Required 1. Calculate the change in operating income of Dranseld Company for 2018 and 2019. 2. Calculate the growth, price-recovery. and productivity components that explain the change in operating income from 2018 to 2019. 3. Comment on your answer in requirement 2. What do these components indicate
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