Following a Strategy of Product Differentiation,Jitsubishi Corporation Makes a High-End

question 81

Essay

Following a strategy of product differentiation,Jitsubishi Corporation makes a high-end flat screen television monitor,TV04.Jitsubishi Corporation presents the following data for the years 2017 and 2018:
$$\begin{array} { l r r } & 2017 & 2018 \\\text { Units of TV04 produced and sold } & 5000 & 5500 \\\text { Selling price } & \$ 400 & \$ 440 \\\text { Direct materials (kilos) } & 15000 & 15375 \\\text { Direct materials costs per kilo } & \$ 40 & \$ 44 \\\text { Manufacturing capacity for TV04 (units) } & 10000 & 10000 \\\text { Conversion costs } & \$ 1000000 & \$ 1100000 \\\text { Conversion costs per unit of capacity } & \$ 100 & \$ 110 \\\text { Selling and customer-service capacity (customers) } & 60 & 58 \\\text { Total selling and customer-service costs } & \$ 360000 & \$ 362500 \\\text { Selling and customer-service capacity cost per customer } & \$ 6000 & \$ 6250\end{array}$$
Jitsubishi Corporation produces no defective units but it wants to reduce direct materials usage per unit of TV04 in 2019.Manufacturing conversion costs in each year depend on production capacity defined in terms of TV04 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.Jitsubishi Corporation has 46 customers in 2017 and 50 customers in 2018.The industry market size for high-end flat screen television monitors increased 5% from 2017 to 2018.
Required:
a.What is the revenue effect of the price-recovery component?
b.What is the cost effect of the price-recovery component?
c.What is the net effect on operating profit as a result of the price-recovery component?
d.What is the net effect on operating profit as a result of the productivity component?
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Definitions:

Profit Margin

Net income divided by sales.