Kendrick Company manufactures a DVD player called Orlicon. The company sells the player to discount stores throughout the country. (Click the icon to view additional information.) Information about the current period (2017) and last period (2016) follows. (Click the icon to view the information for 2017 and 2016.) Suppose that during 2017, the market for DVD players grew 15%. All increases in market share (that is, sales increases greater than 15%) and decreases in the selling price of the Orlicon are the result of Kendrick's strategic actions. (Click the icon to view additional information.) (Click the icon to view operating income for 2016 and 2017.) E: (Click the icon to view the components to explain changes in operating income.) Read the requirement. First, calculate how much of the change in operating income from 2016 to 2017 is due to the industry-market-size factor, product differentiation, and cost leadership. (Do not round intermediary calculations. Only round the amount you input in the cell to the nearest dollar.) Change due to industry market-size Change due to product differentiation Change due to cost leadership Change in operating income How does this relate to Kendrick's strategy and its success in implementation? Explain. its prices to gain market share that might also Kendrick successful in implementing its benefit it in future periods. Kendrick's change in operating income in 2017 was strategy. The in operating income during 2017 was due to by a growth in the overall market size. A Data Table - X 79 2016 2017 1. Units of Orlicon produced and sold 3,000 7,000 2. Selling price 98 $ 3. Direct materials used (kits*) 6,000 6,000 4. Direct material cost per kit* 34 $ 34 5. Manufacturing capacity in kits processed 11,000 9,000 6. Total conversion costs $ 275,000 $ 225,000 7. Conversion cost per unit of capacity (row 6 / row 5) 25 $ 8. Selling and customer-service capacity 93 customers 93 customers 9. Total selling and customer-service costs 9,300 $ 20,460 10. Selling and customer-service capacity per customer (row 9 / row 8) $ 100 $ 220 * A kit is composed of all the major components needed to produce a DVD player. 25 Print Done A Data Table - X 2017 2016 294,000 $ Revenues $ 553,000 Costs Direct material costs Manufacturing conversion costs 204,000 275,000 9,300 204,000 225,000 20,460 Selling and customer service costs 488,300 449,460 Total costs (194,300) $ 103,540 Operating income Print Done A Data Table - X Kendrick has calculated the following growth, price-recovery, and productivity components that explain the change in operating income from 2016 to 2017: Revenue effect of growth $ 392,000 272,000 120,000 F U Cost effect of growth $ Change in operating income due to growth Revenue effect of price recovery $ 133,000 11,1600 Cost effect of price recovery $ 144,160 Change in operating income due to price recovery Direct material costs Conversion costs 272,000 50,000 F F Selling and customer-service costs $ 322,000 Change in operating income due to productivity Print Done
