Bailey Corporation is a small IS consulting firm that specializes in helping companies implement sales management software. Bailey operates in a very competitive environment. To compete, it must deliver quality service at a low cost. Bailey bills clients in terms of units of work performed, which depends on the size and complexity of the sales management system. Bailey presents the following data for the years 2019 and 2020.

	2019	2020
1. Units of work performed	70	80
2. Selling price	$50,000	$48,500
3. Software implementation labour-hours	30,000	31,000
4. Cost per software implementation labour-hour	$60	$64
5. Software implementation support capacity (units of work)	100	100
6. Total cost of software implementation support	$360,000	$3,70,000
7. Software implementation support capacity cost per unit of work	$4,000	$4,200
8. Number of employees doing software development	3	3
9. Total software development costs	$380,000	410,000
10. Software development cost per employee	$130,000	$142,000

Software implementation labour-hour costs are variable costs. Software implementation support costs for each year depend on the software implementation support capacity (defined in terms of units of work) that Bailey chooses to maintain each year. It does not vary with the actual units of work performed each year. At the start of each year, management uses its discretion to determine the number of software-development employees. The software-development staff and costs have no direct relationship with the number of units of work performed.

Required

1. Is Bailey Corporations Strategy one of product differentiation or cost leadership.
2. Calculate the change in operating income of Bailey Corporation in 2019 and 2020
3. Calculate the growth, price recovery, and productivity components of changes in operating income between 2019 and 2020
4. Comment on your answer. What do these components indicate