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Question 2 (49 marks) Following a strategy of product differentiation leadership, The Goodwin Corporation makes high quality electronic components. The following data is reported for the last two fiscal years: 2020 5,500 $950 12,000 $64 Units produced and sold Selling price Direct materials (kilograms) Direct materials costs per kilogram Manufacturing processing capacity (in kilograms of direct materials) Conversion costs Conversion costs per unit of capacity Selling and customer service capacity (# of employees) Total selling and customer-service costs Cost per employee of selling & customer service capacity 2019 5,000 $900 10,000 $60 15,000 $1,350,000 $90 80 $760,000 $9,500 13,000 $1,248,000 $96 78 $780,000 $10,000 Manufacturing conversion costs in each year depend on production capacity defined in terms of units that can be produced. Selling and customer-service costs depend on the number of employees available to manage customer support and is a discretionary cost. Neither conversion costs nor customer-service costs are affected by changes in actual volume. The industry market size for the product increased 6% from 2019 to 2020. Other increases in sales volume are due to the company's product differentiation leadership strategy. Of the $50 increase in unit selling price, $35 is attributable to a general price increase and $15 is attributable to the company being able to distinguish their product as being unique. Required 1. Calculate the operating income for 2019 and 2020 and the change in operating income between the two years (hint, change is $639,000). 2. Based on the change in operating income calculated in requirement 1, calculate the growth, price-recovery and productivity components 3. Prepare a summary that reports each favourable and unfavourable variances from the growth, price recover and productivity components. 4 Calculate how much of the change in operating income is due to industry market size leadership, product differentiation (value leadership) and cost leadership Focus Question 2 (49 marks) Following a strategy of product differentiation leadership, The Goodwin Corporation makes high quality electronic components. The following data is reported for the last two fiscal years: 2020 5,500 $950 12,000 $64 Units produced and sold Selling price Direct materials (kilograms) Direct materials costs per kilogram Manufacturing processing capacity (in kilograms of direct materials) Conversion costs Conversion costs per unit of capacity Selling and customer service capacity (# of employees) Total selling and customer-service costs Cost per employee of selling & customer service capacity 2019 5,000 $900 10,000 $60 15,000 $1,350,000 $90 80 $760,000 $9,500 13,000 $1,248,000 $96 78 $780,000 $10,000 Manufacturing conversion costs in each year depend on production capacity defined in terms of units that can be produced. Selling and customer-service costs depend on the number of employees available to manage customer support and is a discretionary cost. Neither conversion costs nor customer-service costs are affected by changes in actual volume. The industry market size for the product increased 6% from 2019 to 2020. Other increases in sales volume are due to the company's product differentiation leadership strategy. Of the $50 increase in unit selling price, $35 is attributable to a general price increase and $15 is attributable to the company being able to distinguish their product as being unique. Required 1. Calculate the operating income for 2019 and 2020 and the change in operating income between the two years (hint, change is $639,000). 2. Based on the change in operating income calculated in requirement 1, calculate the growth, price-recovery and productivity components 3. Prepare a summary that reports each favourable and unfavourable variances from the growth, price recover and productivity components. 4 Calculate how much of the change in operating income is due to industry market size leadership, product differentiation (value leadership) and cost leadership Focus