Refer to Problem 14- 24. As a result of the actions taken, quality has significantly improved in 2012 while rework and unit costs of the Maxus have decreased. Scott has reduced manufacturing capacity because capacity is no longer needed to support rework. Scott has also lowered the Maxus’ selling price to gain market share and unit sales have increased. Information about the current period (2012) and last period (2011) follows.

* A kit comprises all the major components needed to produce a DVD player.
Conversion costs in each year depend on production capacity defined in terms of units of Maxus that can be produced, not the actual units produced. Selling and customer- service costs depend on the number of customers that Scott can support, not the actual number of customers it serves. Scott has 70 customers in 2011 and 80 customers in 2012.

1. Calculate operating income of Scott Company for 2011 and 2012.
2. Calculate the growth, price- recovery, and productivity components that explain the change in operating income from 2011 to 2012.
3. Comment on your answer in requirement 2. What do these componentsindicate?

  • CreatedJanuary 15, 2015
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