An analysis of Pineway’s operating-income changes between 2019 and 2020 shows the following:

Required

The industry market size for electric motors did not grow in 2020, input prices did not change, and Pineway reduced the prices of its motors.
1. Was Pineway’s gain in operating income in 2020 consistent with the strategy you identified in requirement 1 of Exercise 13-19?

1. Is Pineway’s 2020 strategy one of product differentiation or cost leadership? Explain briefly.
2. Explain the productivity component. In general, does it represent savings in only variable costs, only fixed costs, or both variable and fixed costs?

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Operating income for 2019 Add growth component Deduct price-recovery component Add productivity component Operating income for 2020 $1,500,000 91,000 (82,000) 145,000 $1,654,000