Strategic Analysis of Income Project

Ratliff Appliances Company makes a household appliance with model number RM16. The goal for 2020 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of RM16 units that can be produced. The industry market size for appliances increased 10% from 2019 to 2020. The following additional data are available for 2019 and 2020:

2019 2020

Units of RM16 produced and sold 33,000 37,950

Selling price $360 $345

Direct materials (square feet) 82,500 87,000

Direct material costs per square foot $31 $33

Manufacturing capacity for RM16 (units) 41,250 39,850

Total conversion costs $866,250 $797,000

Conversion costs per unit of capacity $21 $20

Required: Provide your answers in the text boxes in Connect by clicking on the Strategic Analysis of Income (SIA) Project assignment. You must show all work (computations) for each question to receive credit. This allows me to follow your logic and award partial credit if there is a mistake.

Here is a list of the questions that you will need to answer in Connect:

a) Do you think Ratliff Co. is following a strategy of product differentiation or cost leadership? Explain your reasons.

b) Compute the adjusted units for the flexible/variable resource.

c) Compute the adjusted capacity for the committed/fixed resource.

d) Compute the net operating income for 2019. Show your work.

e) Compute the net operating income for 2020. Show your work.

f) Compute the change in net income from 2019 to 2020 and indicate favorable or unfavorable.

g) Compute the revenue effect of the Growth component and indicate favorable or unfavorable.

h) Compute the flexible/variable cost effect of the Growth component and indicate favorable or unfavorable.

i) Compute the committed/fixed cost effect of the Growth component and indicate favorable or unfavorable.

j) Compute the revenue effect of the price-recovery component and indicate favorable or unfavorable.

k) Compute the flexible/variable cost effect of the price-recovery component and indicate favorable or unfavorable.

l) Compute the committed/fixed cost effect of the price-recovery component and indicate favorable or unfavorable.

m) Compute the revenue effect of the productivity component and indicate favorable or unfavorable.

n) Compute the flexible/variable cost effect of the productivity component and indicate favorable or unfavorable.

o) Compute the committed/fixed cost effect of the productivity component and indicate favorable or unfavorable.

p) Ignoring the market growth, but considering your answer to question (a), how much of Ratliff Cos change in income from 2019 to 2020 is due to a product differentiation strategy?

q) Ignoring the market growth, but considering your answer to question (a), how much of Ratliff Cos change in income from 2019 to 2020 is due to a cost leadership strategy?

r) The industry market size for appliances increased 10% from 2019 to 2020. How much of Ratliff Cos change in income from 2019 to 2020 is due to just the industry market size factor?

s) Compute the cost of unused capacity for 2020.