XBlast manufactures an entry-level hoverboard, HOV-X. Pursuing a cost-leadership strategy, the company has tried to improve quality and reduce costs. As a result of the actions taken over the last year, quality has significantly improved in 2020 while rework and unit costs of the HOV-X have decreased. XBlast has reduced manufacturing capacity because capacity is no longer needed to support rework. XBlast has also lowered HOV-X’s selling price to gain market share and unit sales have increased. Information about the current period (2020) and last period (2019) follows:

Required

Conversion costs in each year depend on production capacity defined in terms of kits that can be processed, not the actual kits started. Selling and customer-service costs depend on the number of customers that XBlast can support, not the actual number of customers it serves. XBlast has 125 customers in 2019 and 150 customers in 2020.
1. Calculate operating income of XBlast for 2019 and 2020.
2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2019 to 2020.
3. Comment on your answer in requirement 2. What do these components indicate?

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1. Units of HOV-X produced and sold 2. Selling price 3. Direct materials used (kitsa) 4. Direct material cost per kita 5. Manufacturing capacity in kits processed 6. Total conversion costs 7. Conversion cost per unit of capacity (row6+ row5) 8. Selling and customer-service capacity 9. Total selling and customer-service costs 10. Selling and customer-service capacity cost per customer (row 9 = row8) *A kit is composed of all the major components needed to produce a hoverboard. 2019 15,000 $125 18,000 $30 30,000 $660,000 $22 200 customers $35,000 $175 2020 25,000 $100 27,000 $30 28,000 $616,000 $22 200 customers $38,000 $190