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Following a strategy of product differentiation, Ernsting Corporation makes a high-end computer monitor, CM12. Ernsting Corporation presents the following data for the years 2018
Following a strategy of product differentiation, Ernsting Corporation makes a high-end computer monitor, CM12. Ernsting Corporation presents the following data for the years 2018 and 2019: Units of CM12 produced and sold Selling Price Direct materials (pounds) Direct materials costs per pound Manufacturing capacity for CM12 (units) Conversion costs Conversion costs per unit of capacity Selling and customer-service costs Total selling and customer-service costs Selling and customer service capacity cost per customer 2018 2019 5,000 5,200 $400 $440 15,000 15,550 $41 $44 10,000 9.500 $1,000,000 $1,045,000 $100 $110 60 58 $360,000 $362,500 $6,000 $6,250 Ernsting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM12 in 2019. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM12 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. Ernsting Corporation has 60 customers in 2018 and 58 customers in 2019. The industry market size for high-end computer monitors increased 3% from 2018 to 2019. Required: a. What is the revenue effect of the growth component? b. What is the cost effect of the growth component? C. What is the net effect on operating income as a result of the growth component? d. What is the effect of the industry-market-size factor on operating income? Note: Please show the calculations and identify whether the change is "F" (favorable) or "UF" (unfavorable).
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