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

question 158

Essay

Use the information below to answer the following question(s).
Following a strategy of product differentiation,Ernsting Ltd.makes high quality electronic components.Ernsting Ltd.presents the following data for the past two years relating to its XJ649 product.
Ernsting produces no defective units but it wants to reduce direct materials usage per unit in Year 2 .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 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.Ernsting has 60 customers in Year 1 and 66 customers in Year 2.The industry market size for the product increased 6% from Year 1 to Year 2.Of the $50 increase in unit selling price,$30 is attributable to a general price increase.
-Required:
Present the following,
a.The change in operating income from cost leadership.
b.The change in operating income due to industry wide effects.
c.The effect of product differentiation on operating income and a summarization of the change in operating income between Year 1 to Year 2.

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Definitions:

Responsibility Centres

Units within an organization for which managers are responsible, focusing on revenues, costs, or a combination of both, to measure performance.

Budgetary Slack

The practice of underestimating revenue or overestimating expenses to make budget targets more easily attainable.

Window Dress

Window Dressing is a financial strategy used by companies to improve the appearance of their financial statements or investment portfolio, often at the end of an accounting period.

Sales Staff

Employees responsible for the sale of products or services, pivotal in achieving business revenue targets and maintaining customer relationships.