Part 2: Growth, Price Recovery, and Productivity (20 marks) Inca Instruments Inc. (III) makes a handheld calculator, the 11400. III presents the following data for years 1 and 2: Year 1 Year 2 Units of H400 produced and sold 50,000 52,500 Selling price $40 $44 Direct materials (kilograms) 150,000 153,375 Direct materials costs per kilogram $4.00 $4.40 Manufacturing capacity for 11400 (units) 62,500 62,500 Total manufacturing conversion costs $500,000 $550,000 Manufacturing conversion costs per unit of capacity $8.00 $8.80 Selling and customer-service capacity (customers) 30 29 Total selling and customer-service costs $360,000 $362,500 Cost per customer of selling & customer-service capacity $12,000 $12,500 Manufacturing conversion costs depend on production capacity defined in terms of the number of H400 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer service functions are designed to support. Neither conversion costs nor customer service costs are affected by changes in actual volume. Inca Instruments has 23 customers (retailers) in Year 1 and 25 customers in Year 2. The industry market size for handheld calculators increased 5% from Year 1 to Year 2. Of the $4 increase in unit selling price, $1 is due to a general increase in prices. Required: 1. Calculate the operating income for Years 1 and 2. (4 marks) 2. Calculate the growth (both revenue and cost effect), price-recovery (both revenue and cost effect), and productivity components that explain the change in operating income from Year 1 to Year 2. (10 marks) 3. What type of strategy is the company pursuing: cost leadership or value leadership? Support your answer using the variances calculated in #2 (i.e., explain how the variances may demonstrate that the company is pursuing a particular strategy). (6 marks)