Following a strategy of product differentiation, Beta Corporation makes a high-end computer monitor, X5. Beta Corporation presents the following data for the years 2018 and 2019:

2018 2019

Units of X5 produced and sold 5,000 5,500

Selling price $400 $440

Direct materials (pounds) 15,000 15,375

Direct materials costs per pound $40 $44

Manufacturing capacity for X5 (units) 10,000 10,000

Conversion costs $1,000,000 $1,100,000

Conversion costs per unit of capacity $100 $110

Selling and customer-service capacity (customers) 60 58

Total selling and customer-service costs $360,000 $362,500

Selling & customer-service capacity cost per cust $6,000 $6,250

Beta Corporation produces no defective units but it wants to reduce direct materials usage per unit of X5 in 2019. Manufacturing conversion costs in each year depend on production capacity defined in terms of X5 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Beta Corporation has 100 customers in 2018 and 115 customers in 2019. The industry market size for high-end computer monitors increased 5% from 2018 to 2019.

Required:

a. What is the revenue effect of the price-recovery component?

b. What is the cost effect of the price-recovery component?

c. What is the net effect on operating income as a result of the price-recovery component?

d. What is the net effect on operating income as a result of the productivity component?

Just answer QS b