Following a strategy of product differentiation, Huntington Corporation makes a high-end Computer Monitor, CM12. Huntington Corporation presents the following data for the years 1 and 2:

	Year 1	Year 2
Units of CM12 produced and sold	5,000	5,500
Selling price	$400	$440
Direct materials (kilograms)	15,000	15,375
Direct materials costs per kilogram	$40	$44
Manufacturing capacity for CM12 (units)	10,000	10,000
Total manufacturing conversion costs	$500,000	$550,000
Manufacturing conversion costs per unit of capacity	$50	$55
Selling and customer-service capacity (customers)	60	58
Total selling and customer-service costs	$180,000	$181,250
Cost per customer of selling & customer-service capacity	$3,000	$3,125

Huntington Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM12 in Year 2. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM12 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Neither conversion costs nor customer-service costs are affected by changes in actual volume. Huntington Corporation has 46 customers in Year 1 and 50 customers in Year 2. The industry market size for high-end computer monitors increased 5% from Year 1 to Year 2. Of the $40 increase in unit selling price, $10 was attributable to a general industry-wide increase in prices.

Required Where relevant, please include both the $$ amount and whether the result is favourable (F) or unfavourable (U).	Final Answers
What is the change in operating income from Year 1 to Year 2?
What amount is the revenue effect of growth component?
What amount is the cost effect of growth component?
What is the change in operating income as a result of the growth component?
What amount is the revenue effect of price recovery component?
What amount is the cost effect of price recovery component?
What is the change in income as a result of the price recovery component?
What is the amount of the productivity component?
As further analysis, for parts 9 to 11, please determine the change in operating income that is due to: The company’s product differentiation strategy.
Industry-wide effects.
Cost leadership aspects included in the company’s operating objectives.
Do you reconcile with your “target” change in operating income from part 1? Please provide supporting reconciliations based on your answers in parts 2-8; then parts 9-11.

Answer rating: 100% (QA)

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