2 What 13-30 Strategic analysis of operating income. Dransfield Company manufactures an electronic competitors. Order-processing time is very short; however, approximately 10% of products are defective component, ZP98. This component is significantly less expensive than similar products sold by Dransfield's feld's main competitor, has a higher-priced product with almost no defects but a longer order-processing and returned by the customer. Returns and refunds are handled promptly. Yorunt Manufacturing, Drans- problems and fix them before products are finished and shipped to customers. Quality is now at an accept- time. Assume that in 2019, Dransfield has changed its processes and trained workers to recognize quality and Dransfield has raised its selling price in line with the market. Sales have increased and returns have able level. Cost per kilogram of materials is about the same as before, but conversion costs are higher, decreased. Dransfield's managers attribute this to higher quality and a price that is still less than Yorunt's. 1a. Units of ZP98 produced and sold 1b. Units of ZP98 returned 1c. Net sales in units 2 Selling price 1 Direct materials (kilograms) used 4. Direct materials cost per kilogram 5. Manufacturing capacity in units of ZP98 6. Total conversion costs 7. Conversion cost per unit of capacity & Selling and customer-service capacity Total selling and customer-service costs 10. Selling and customer-service capacity cost per customer 11. Advertising staff 12 Total advertising costs 13. Advertising cost per employee 2018 5,000 2019 6,250 500 225 4,500 6,025 $44 $50 2,500 3,125 $10 $10 8,000 8,000 $128,000 $16 $184,000 $23 60 customers 60 customers $4,000 $4,180 $66.67 $69.67 1 1 $20,000 $24,000 $20,000 $24,000 EXCEL LO 4 1. Change $36,820 F 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 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 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 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?