Following a strategy of product differentiation, Mesh Corporation makes a high-end

computer monitor, CM7. Mesh Corporation presents the following data for the years 2019

and 2020:

2019 2020

Units of CM 7 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 CM7 (units) 10,000 10,000

Conversion costs per unit of capacity $100 $110

Selling and customer-service capacity (customers) 60 58

Selling and customer-service cost/customer $6,000 $6,250

Required:

a. What is operating income for 2019?

b. What is operating income in 2020?

c. What is the change in operating income from 2019 to 2020?

d. What is the revenue effect of the growth component?

e. What is the cost effect of the growth component?

f. What is the net effect on operating income as a result of the growth component?

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

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

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

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

k. Show your reconciliation of the operating incomes between the two year.