Haller Corporation is a small information system consulting firm that specializes in helping companies implement sales management software. The market for Hallers products is very competitive. To compete, Haller must deliver quality service at a low cost. Haller bills clients in terms of units of work performed, which depends on the size and complexity of the sales management system. Haller presents the following data for the years 2021 and 2022.

2021 2022

1. units of work performed 60 70

2. selling price $50,000 $48,200

3. software implementation labour-hours 30,000 32,000

4. cost per software implementation labour-hour $60 $63

5. software implementation support capacity (units) 90 90

6. total cost of software implementation support $360,000 $369,000

7. software implementation support capacity cost per unit $4,000 $4,100

8. number of employees doing software development 3 3

9. total software development costs $375,000 $390,000

10. software development cost per employee $125,000 $130,000

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 Haller 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.

14-25 Analysis of growth, price-recovery, and productivity components.

Suppose that during 2022 the market for implementing sales management software increased by 5%, and that Haller experience a 1% decline in prices. Assume that any further decreases in selling prices and increases in market share are strategic choices by Hallers management to implement Hallers cost leadership strategy.

Required: calculate how much of the change in operating income between 2021 and 2022 is due to industry market-size factors, cost leadership, and product differentiation. How successful has Haller been in implementing its strategy?