QUESTION C: Profitability analysis

Artie's Appliances Ltd. (AA) makes waffle irons which are distributed through appliance wholesalers who sell to major retailers throughout Canada. The waffle irons are a popular brand because they are a reliable, low cost purchase.AA presents the following data for the 2019 and 2020.

2019

2020

Units of waffle irons produced and sold

200,000

210,000

Selling price

$16.00

$15.50

Direct materials (kilograms)

100,000

100,800

Direct materials costs per kilogram

$8.00

$7.50

Manufacturing capacity in waffle irons

220,000

220,000

Total manufacturing conversion costs

$1,100,000

$1,003,200

Manufacturing conversion costs (per unit of capacity)

$5.00

$4.56

Selling and customer- service capacity (customers)

60

58

Total selling and customer-service costs

$360,000

$362,500

Cost per customer of selling and customer-service capacity

$6,000

$6,250

AA produces no defective units but it wanted to reduce direct materials usage per waffle iron in 2020. Manufacturing conversion costs in each year depend on production capacity defined in terms of waffle irons 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 nor customer-service costs are affected by changes in actual volume. AA had 46 customers in 2019 and 50 customers in year 2020. The industry market size for small appliances increased 5% from 2019 to year 2020.

The following questions relate to the above data

1.Which of the following is a Balanced Scorecard measure of the internal business process perspective? (there are 2 correct answers)

A) return on investment

B) market share in the high-end appliance market

C) development time of new models of waffle irons

D) production cycle time of a batch of waffle irons

2.Which of the following is a measure of the learning and growth perspective of the Balanced Scorecard? (there is 1 correct answer)

A) return on investment

B) market share in the high-end appliance market

C) number of employees trained in quality management

D) production cycle time of a batch of waffle irons

3.Calculate the change in operating income from 2019 to 2020.

4. Calculate the change in operating income as a result of the growth component.

5. Calculate the net increase in operating income as a result of the price-recovery component?

6.Calculate the productivity component of change in operating income.

7.Prove that the sum of the figures calculated in questions 4 to 6 are equal to the change in operating income calculated in part 3.

8.What is AA's strategy? Based on the results you calculated in questions 1 to 6; was AA successful in implementing this strategy? Explain.