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

question 53

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 growth component?
b.What amount is the cost effect of the growth component?
c.What is the net effect on operating income as a result of the growth component?

---

Definitions:

Professional Ethics

The moral principles that govern the behavior of professionals in their business and workplace activities.

Personal Perspective

An individual's viewpoint or opinion based on their personal experiences and beliefs.

Intangible Elements

Components of value that cannot be touched or physically measured, such as intellectual property, brand reputation, or goodwill.