Halsey Company sells women's clothing. Halsey's strategy is to offer a wide selection of clothes and excellent customer service and to charge a premium price. Halsey presents the following data for 2018 and 2019. For simplicity, assume that each customer purchases one piece of clothing. 2018 2019

2018 2019

1. Pieces of clothing purchased and sold 40,000 40,000

2. Average selling price $60 $59

3. Average cost per piece of clothing $40 $41

4. Selling and customer-service capacity 51,000 customers 43,000 customers

5. Selling and customer-service costs $357,000 $296,700

6. Selling and customer-service capacity cost per customer $7 per customer $6.90 per customer (line 5 + line 4)

7. Purchasing and administrative capacity 980 designs 850 designs

8. Purchasing and administrative costs $245,000 $204,000

9. Purchasing and administrative capacity cost per distinct $250 per design $240 per design design (line 8 + line 7)

Total selling and customer-service costs depend on the number of customers that Halsey has created capacity to support, not the actual number of customers that Halsey serves. Total purchasing and administrative costs depend on purchasing and administrative capacity that Halsey has created (defined in terms of the number of distinct clothing designs that Halsey can purchase and administer). Purchasing and administrative costs do not depend on the actual number of distinct clothing designs purchased. Halsey purchased 930 distinct designs in 201 8 and 820 distinct designs in 2019. At the start of 2019, Halsey planned to increase operating income by 10% over operating income in 201 8.

Required

1. Is Halsey's strategy one of product differentiation or cost leadership? Explain.

2. Calculate the change in Halsey's operating income in 201 8 and 2019.