Question 2: (65 marks total) Following a strategy of product differentiation, Calculate Inc. makes a hand held calculator, SPX 1000. Calculate Inc. presents the following data for the years 1 and 2: Units of SPX 1000 produced and sold Selling price Direct materials (kilograms) Direct materials costs per kilogram Manufacturing capacity for SPX 1000 (units) Total manufacturing conversion costs Manufacturing conversion costs per unit of capacity Selling and customer-service capacity (customers) Total selling and customer-service costs Cost per customer of selling & customer-service capacity 50,000 $40 55,000 $46 150,000 151,625 $6.00 $6.50 70,000 70,000 $560,000 $630,000 $8.00 $9.00 33 31 $297,000 $9,000 $294,500 $9,500 Calculate Inc. produces no defective units but it wants to reduce direct materials usage per unit of SPX 1000 in year 2. Manufacturing conversion costs in each year depend on production capacity defined in terms of SPX 1000 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Neither conversion costs or customer-service costs are affected by changes in actual volume. Calculate Inc. has 23 customers in year 1 and 25 customers in year 2. The industry market size for hand held calculators increased 5% from year 1 to year 2. Of the $6 increase in unit selling price, $2 is due to a general increase in prices. Required a. What is the operating income for Year 1? b. What is the operating income in Year 2? c. What is the change in operating income from Year 1 to Year 2? d. What amount is the revenue effect of the growth component? e. What amount is the cost effect of the growth component? f. What is the net effect on operating income as a result of the growth component? g. What amount is the revenue effect of the price-recovery component? h. What amount is the cost effect of the price-recovery component? i. What is the net change in operating income as a result of the price-recovery component? J. What is the net effect on operating income as a result of the productivity component? k. The change in operating income from cost leadership. 1. The change in operating income due to industry wide effects. m. The effect of product differentiation on operating income and a summarization of the change in operating income between Year 1 to Year 2.