New Reality Inc. (NR) makes a special-purpose C-36 machine used in the plastics industry. SB has designed the C-36 machine for 2019 to be distinct from its competitors. It has been generally regarded as a superior machine. NR presents the following data for the years 2019 and 2020.

	2019	2020
Units of C36 produced and sold	200	210
Selling Price	$40,000	$42,000
Direct Materials (kg)	300,000	310,000
Direct Material per kg.	$8.00	$8.50
Manufacturing capacity (units of C36)	250	250
Total conversion costs	$2,000,000	$2,025,000
Conversion costs per unit of capacity	$8,000	$8,100
Selling and customer service capacity	100	95
Total selling and customer service costs	$1,000,000	$940,500
Selling and customer service capacity cost per customer	$10,000	$9,900
Design Staff	12	12
Total Design costs	$1,200,000	$1,212,000
Design cost per employee	$100,000	$101,000

NR produces no defective machines, but it wants to reduce direct materials usage per C-36 machine in 2020. Manufacturing conversion costs in each year depend on production capacity defined in terms of C-36 units that can be produced, not the actual units of C-36 produced. Selling and customer-service costs depend on the number of customers that NR can support, not the actual number of customers New Reality Inc. serves. NR has 75 customers in 2019 and 80 customers in 2020. At the start of each year, management uses its discretion to determine the number of design staff for the year. The design staff and costs have no direct relationship with the quantity of C-36 produced or the number of customers to whom C-36 is sold.

Required:

1. Calculate the change in operating income of New Realty Inc. in 2019 and 2020. (10 marks)
2. Choose two (2) methods to calculate either the growth component, price-recovery component, or productivity components of changes in operating income between 2019 and 2020. (20 marks)
3. Comment on one of the methods you chose in requirement # 2 and what does it indicate. (5 marks)