Analysis of growth, price-recovery, and productivity components (continuation of 13-16). An analysis of Ridgecrest’s operating-income changes between 2011 and 2012 shows the following:
Operating income for 2011.........$1,850,000
Add growth component............85,000
Deduct price-recovery component.........(72,000)
Add productivity component...........150,000
Operating income for 2011.........$2,013,000
The industry market size for corrugated cardboard boxes did not grow in 2012, input prices did not change, and Ridgecrest reduced the prices of its boxes.
Required
1. Was Ridgecrest’s gain in operating income in 2012 consistent with the strategy you identified in requirement 1 of Exercise 13-16?
2. Explain the productivity component. In general, does it represent savings in only variable costs, only fixed costs, or both variable and fixed costs?