Truman Company manufactures a DVD player called Orlicon. The company sells the player to discount stores throughout the country. Click the icon to view additional information.) Information about the current period (2017) and last period (2016) follows. Click the icon to view the information for 2017 and 2016.) Suppose that during 2017, the market for DVD players grew 10%. All increases in market share (that is, sales increases greater than 10%) and decreases in the selling price of the Orlicon are the result of Truman's strategic actions. (Click the icon to view additional information.) (Click the icon to view operating income for 2016 and 2017.) (Click the icon to view the components to explain changes in operating income.) Read the requirement. More Info -X Data Table 2016 2017 This player is significantly less expensive than similar products sold by Truman's competitors, but the Orlicon offers just DVD playback, compared with DVD and Blu-ray playback offered by competitor Pilgrim Manufacturing. Furthermore, the Orlicon has experienced production problems that have resulted in significant rework costs. Pilgrim's model has an excellent reputation for quality. Revenues $ 470,000 $ 912,000 Costs 390,000 360,000 Direct material costs Manufacturing conversion costs As a result of the actions taken, quality has significantly improved in 2017 while rework and unit costs of the Orlicon have decreased. Truman has reduced manufacturing capacity because capacity is no longer needed to support rework. Truman has also lowered the Orlicon's selling selling price to gain market share and unit sales have increased. 399,000 9,500 357,000 15.200 Selling and customer service costs 798,500 Total costs 732,200 More Info $ (328,500) $ 179,800 Operating income Print Done Conversion costs in each year depend on production capacity defined in terms of kits that can be processed, not the actual kits started. Selling and customer-service costs depend on the number of customers that Truman can support, not the actual number of customers it serves. Truman has 75 customers in 2016 and 82 customers in 2017. Print Done Data Table - X 2016 2017 1. Units of Orlicon produced and sold 12,000 2. Selling price 5,000 94 $ 13,000 76 12,000 30 $ 30 17,000 19,000 399,000 $ 3. Direct materials used (kits*) 4. Direct material cost per kit* 5. Manufacturing capacity in kits processed 6. Total conversion costs 7. Conversion cost per unit of capacity (row 6/row 5) 8. Selling and customer-service capacity 9. Total selling and customer-service costs 10. Selling and customer-service capacity per customer (row 9 / row 8) $ * A kit is composed of all the major components needed to produce a DVD player. 21 $ 357.000 21 95 customers 15,200 95 customers 9,500 $ 100 $ 160 Print Done Data Table Truman has calculated the following growth, price-recovery, and productivity components that explain the change in operating income from 2016 to 2017: Revenue effect of growth $ F 658,000 546,000 Cost effect of growth 112,000 Change in operating income due to growth Revenue effect of price recovery $ 216,000 5.700 U Cost effect of price recovery $ 221,700 Change in operating income due to price recovery Direct material costs 576,000 42,000 F F Conversion costs Selling and customer-service costs $ 618,000 Change in operating income due to productivity F Requirement Calculate how much of the change in operating income from 2016 to 2017 is due to the industry-market-size factor, product differentiation, and cost leadership. How does this relate to Truman's strategy and its success in implementation? Explain
