Question: An analysis of Ridgecrest s operating income changes between 2012 and

An analysis of Ridgecrest’s operating- income changes between 2012 and 2013 shows the following:
Operating income for 2012 ......... $ 1, 900,000
Add growth component ........... 95,000
Deduct price- recovery component ...... (82,000)
Add productivity component ........ 160,000
Operating income for 2013 .........$ 2, 073,000
The industry market size for electric motors did not grow in 2013, input prices did not change, and Ridgecrest reduced the prices of its motors.

1. Was Ridgecrest’s gain in operating income in 2013 consistent with the strategy you identified in requirement 1 of Exercise 12-16?
2. Explain the productivity component. In general, does it represent savings in only variable costs, only fixed costs, or both variable and fixedcosts?

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