RJM Enterprises is a manufacturer of consumer electronics products. The industry is very competitive, and RJM has seen its profits fall in recent years, including an operating loss of

$70,000 last year. In an attempt to turn that around this year, RJM implemented a marketing and cost reduction programmes. Included in the programmes were dealer discounts, increased direct advertising of $30,000 and an aggressive cost reduction programme.

The summarized financial results for RJM are shown below:

	Current Year	Prior Year
Gross sales:	$1,155,000	$1,600,000
Less variable costs
Direct materials	371,250	720,000
Direct labor	534,600	800,000
Total contribution margin	$249,150	$80,000
Fixed costs	180,000	150,000
Operating income	$69,150	($70,000)

Operating data for the current and prior year follow:

	Current Year	Prior Year
Sales units	33,000	40,000
Selling price	$35	$40
Direct materials price per unit of material	$15	$18
Direct materials required per unit	0.75	1
Wage rate ($/hour)	$9/hour	$10/hour
Direct labor hour required per unit	1.8 hours	2 hours
Market size	300,000	400,000

Assume that RJM, for efficiency and to reduce cost, maintains little or no direct materials or work-in-process inventory.

Required:

1. Is RJMs strategy in the current year one of product differentiation or cost leadership? Explain. (2 marks)

2. Calculate the selling price variance for the current year based on sales dollars and the sales volume variance based on the contribution margin using the prior years results as standard. (3 marks)

3. Calculate the direct material quantity and price variances using the prior years results as standard. (3 marks)

4. Calculate the direct labor efficiency and rate variances using the prior years results as standard. (3 marks)

5. Calculate the market share variance and market size variance. (3 marks)

6. Based on the above analysis, how successfully was RJMs strategy? (6 marks)