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

question 81

Essay

Following a strategy of product differentiation,Sting Corporation makes a high-end computer monitor,CM7.Sting Corporation presents the following data for the years 2012 and 2013:
$\begin{array}{lrr}&2012&2013\\\text { Units of CM 7 produced and sold } & 5,000 & 5,500 \\\text { Selling price } & \$ 400 & \$ 440 \\\text { Direct materials (pounds) } & 15,000 & 15,375 \\\text { Direct materials costs per pound } & \$ 40 & \$ 44 \\\text { Manufacturing capacity for CM7 (units) } & 10,000 & 10,000\\\text { Conversion costs } & \$ 1,000,000 & \$ 1,100,000 \\\text { Conversion costs per unit of capacity } & \$ 100 & \$ 110 \\\text { Selling and customer-service capacity (customers) } & 60 & 58 \\\text { Total selling and customer-service costs } & \$ 360,000 & \$ 362,500 \\\text { Selling and customer-service capacity cost per customer } & \$ 6,000 & \$ 6,250\end{array}$ Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2013.Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 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.Sting Corporation has 100 customers in 2012 and 115 customers in 2013.The industry market size for high-end computer monitors increased 5% from 2012 to 2013.
Required:
a.What is operating income for 2012?
b.What is operating income in 2013?
c.What is the change in operating income from 2012 to 2013?

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Definitions:

Product Line

A group of related products marketed by a company under a single brand, catering to a particular market segment.

M-form Design

An organizational structure characterized by a decentralized decision-making process, divided into semi-autonomous divisions each responsible for its own profit and loss.

Organization Design

Organization design involves the creation of the role, processes, and structure of an organization to ensure it can meet its objectives and strategy effectively.

Multinational Corporation

A company that operates in multiple countries, managing production or delivering services in more than one country.