Following a strategy of product differentiation, Westwood Corporation makes a high-end kitchen range hood, KE8. Westwood’s data for 2019 and 2020 are shown below:

In 2020, Westwood reduced direct material usage per unit of KE8. Conversion costs in each year are tied to manufacturing capacity. Selling and customer-service costs are related to the number of customers that the selling and customer-service functions are designed to support. Westwood had 23 customers (wholesalers) in 2019 and 25 customers in 2020.

Required:

1. Describe briefly the key elements you would include in Westwood’s balanced scorecard.
2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2019 to 2020.
3. Suppose during 2020, the market size for high-end kitchen range hoods grew 3% in terms of number of units and all increases in market share (that is, increases in the number of units sold greater than 3%) are due to Westwood’s product-differentiation strategy. Calculate how much of the change in operating income from 2019 to 2020 is due to the industry-market-size factor, cost leadership, and product differentiation.
4. How successful has Westwood been in implementing its strategy? Explain.

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1. Units of KE8 produced and sold 2. Selling price 3. Direct materials (square feet) 4. Direct material cost per square foot 5. Manufacturing capacity for KE8 6. Conversion costs 7. Conversion cost per unit of capacity (row 6 + row 5) 8. Selling and customer-service capacity 9. Selling and customer-service costs 10. Cost per customer of selling and customer-service capacity (row 9 + row 8) 2019 40,000 $100 120,000 $10 50,000 units $1,000,000 $20 30 customers $720,000 $24,000 2020 42,000 $110 123,000 $11 50,000 units $1,100,000 $22 29 customers $725,000 $25,000