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

question 78

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:
a.What amount is the revenue effect of the price-recovery component?
b.What amount is the cost effect of the price-recovery component?
c.What is the net effect on operating income as a result of the price-recovery component?
d.What is the net effect on operating income as a result of the productivity component?

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Definitions:

Acculturation

The process of cultural and psychological change that results following meeting between cultures, involving adaptations in cultural patterns of either or both groups.

Entrepreneurial Culture

A workplace environment that values creativity, innovation, and the willingness to take risks in order to achieve business success.

Hierarchical Culture

A type of organizational culture where power and authority are clearly defined and structured from top to bottom.

Rational Culture

A type of organizational culture that emphasizes logic, efficiency, and formal structures to achieve business goals.