14-30 Strategic analysis of operating income. [Excel template] (LO 4) Dransfield Company manufactures an electronic component, ZP98. This component is significantly less expensive than similar products sold by Dransfield's competitors. Order-processing time is very short; however, approximately 10% of products are defective and returned by the customer. Returns and refunds are handled promptly. Yorunt Manufacturing, Dransfield's main competitor, has a higher-priced product with almost no defects but a longer order-processing time. Assume that in 2022, 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 acceptable 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 (2022) and last period (2021) follows. 2021 2022 1a. Units of ZP98 produced and sold 5,000 6,250 1b. Units of ZP98 returned 1c. Net sales in units 2. Selling price 3. Direct materials (kilograms) used 4. Direct materials cost per kilogram 5. Manufacturing capacity in units of ZP98 6. Total conversion costs 500 225 4,500 6,025 $44 $50 2,500 3,125 $10 $10 8,000 8,000 $128,000 $184,000 7. Conversion cost per unit of capacity $16 $23 8. Selling and customer-service capacity 9. Total selling and customer-service costs 11. Advertising staff 12. Total advertising costs 60 customers 60 customers $4,000 $4,180 10. Selling and customer-service capacity cost per customer $66.67 $69.67 1 1 $20,000 $24,000 13. Advertising cost per employee $20,000 $24,000 588 Conversion costs in each year depend on production capacity defined in terms of ZP98 units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Dransfield can support, not the actual number of customers it serves. Dransfield has 50 customers in 2021 and 60 customers in 2022. At the start of each year, management uses its discretion to determine the number of advertising staff for the year. Advertising staff and its costs have no direct relationship with the quantity of ZP98 units produced and sold or the number of customers who buy ZP98. Required 1. Calculate the change in operating income of Dransfield Company for 2021 and 2022. 2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2021 to 2022. 3. Comment on your answer in requirement 2. What do these components indicate? Required 1. Calculate the change in operating income of Dransfield Company for 2021 and 2022. 2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2021 to 2022. 3. Comment on your answer in requirement 2. What do these components indicate? Check Figure: 1. Change in operating income, $36,820 F 14-31 Analysis of growth, price-recovery, and productivity components (continuation of Exercise 14-30). (LO 5) Suppose that during 2022, the market for ZP98 grew 8%. All increases in market share (i.e., sales increases greater than 8%) are the result of Dransfield's strategic actions. Required Calculate how much of the change in operating income from 2021 to 2022 is due to the industry market-size factor, product differentiation, and cost leadership. How does this relate to Dransfield's strategy and its success in implementation? Explain. Check Figure: Unit increase due to market share, 1,165