Halsey Company sells women's clothing. Halsey's strategy is to offer a wide selection of clothes and excellent customer service and to charge a premium price. Halsey presents the following data for 2015 and 2016. For simplicity, assume that each customer purchases one piece of clothing.

Total selling and customer-service costs depend on the number of customers that Halsey has created capacity to support, not the actual number of customers that Halsey serves. Total purchasing and administrative costs depend on purchasing and administrative capacity that Halsey has created (defined in terms of the number of distinct clothing designs that Halsey can purchase and administer). Purchasing and administrative costs do not depend on the actual number of distinct clothing designs purchased. Halsey purchased 930 distinct designs in 2015 and 820 distinct designs in 2016. At the start of 2016, Halsey planned to increase operating income by 10% over operating income in 2015.

Required
1. Is Halsey's strategy one of product differentiation or cost leadership? Explain.
2. Calculate the change in Halsey's operating income in 2015 and 2016.
3. Calculate the growth, price-recovery, and productivity components of changes in operating income between 2015 and 2016.
4. Does the strategic analysis of operating income indicate Halsey was successful in implementing its strategy in 2016? Explain.

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2015 2016 40,000 S60 S40 51,000 customers S357,000 $7 per customer 40,000 $59 1. Pieces of clothing purchased and sold 2. Average selling price 3. Average cost per piece of clothing 4. Selling and customer-service capacity 5. Selling and customer-service costs 6. Selling and customer-service capacity cost per customer 43,000 customers S296,700 S6.90 per customer (Line 5 Line 4) 7. Purchasing and administrative capacity 8. Purchasing and administrative costs 9. Purchasing and administrative capacity cost per distinct 980 designs S245,000 $250 per design 850 designs S204,000 $240 per design design (Line 8 Line 7)