Use the Information Below to Answer the Following Question(s)

question 135

Essay

Use the information below to answer the following question(s).
Following a strategy of product differentiation,Despotovich Corporation makes a high-end Computer Monitor,CM12.Despotovich Corporation presents the following data for the years 1 and 2:
Despotovich Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM12 in Year 2.Manufacturing conversion costs in each year depend on production capacity defined in terms of CM12 units 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.Despotovich Corporation has 46 customers in Year 1 and 50 customers in Year 2 .The industry market size for high-end computer monitors increased 5% from Year 1 to Year 2.Of the $40 increase in unit selling price,$10 was attributable to a general increase in prices.
-Required:
a.What is the operating income for Year 1?
b.What is the operating income in Year 2?
c.What is the change in operating income from Year 1 to Year 2?

---

Definitions:

Up-front Costs

Initial expenses required to start a project, product, or service before any financial return is seen.

Discounted Payback Period

The time required to recoup the cost of an investment while considering the time value of money, typically shorter than simple payback period.

Required Return

The least profit anticipated by an investor from an investment in a certain asset, given its risk profile.

Cash Flows

The net amount of cash being transferred into and out of a business, especially as affecting liquidity.