Question
Buck Corporation offers a computer monitor, CM7 to its customers. Buck adopted product differentiation strategy from 2019. Buck Corporation presents the following data for 2018
Buck Corporation offers a computer monitor, CM7 to its customers. Buck adopted product differentiation strategy from 2019. Buck Corporation presents the following data for 2018 and 2019:
| 2018 | 2019 |
Units of CM7 produced and sold Average Selling price per unit | 5,000 $400 | 5,400 $420 |
Direct materials used (pounds) Direct materials costs per pound | 15,000 $40 | 17,375 $44 |
Customer service capacity (customers) Customer service costs per year Customer service costs per customer | 120 $360,000 $3,000 | 125 $362,500 $2,900 |
Direct materials are directly related to production quantity. Customer service costs depend on the number of customers that the company can support, not the actual number of customers it serves. Buck Corporation has 100 customers in 2018 and 115 customers in 2019.
Suppose that during 2019, the market for Buck Corporations product grew by 6%. Any further changes in selling price and sales quantity are strategic choices by Bucks management to implement their strategy.
Q:
Calculate the growth, price-recovery and productivity components that explain the change in operating profit from 2018 to 2019.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started