Question $5\mathrm{.}3($Total: $62$ marks$)$

Following a strategy of product differentiation, R$2$D$2$ Corporation makes a high$-$end computer monitor, BB$8.$ R$2$D$2$ Corporation presents the following data for the years $1$ and $2$:

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Units of BB$8$ 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 BB$8($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$

R$2$D$2$ Corporation produces no defective units but it wants to reduce direct materials usage per unit of BB$8$ in Year $2.$ Manufacturing conversion costs in each year depend on production capacity defined in terms of BB$8$ 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. R$2$D$2$ 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 increase in prices.

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Required

$1)$ What is the operating income for Year $1?$

$2)$ What is the operating income in Year $2?$

$3)$ What is the change in operating income from Year $1$ to Year $2?$

$4)$ What amount is the revenue effect of growth component?

$5)$ What amount is the cost effect of growth component?

$6)$ What is the change in operating income as a result of the growth component?

$7)$ What amount is the revenue effect of price recovery component?

$8)$ What amount is the cost effect of price recovery component?

$9)$ What is the change in income as a result of the price recovery component?

$10)$ What is the amount of the productivity component?

$11)$ The change in operating income from cost leadership.

$12)$ The change in operating income due to industry wide effects.

$13)$ The effect of product differentiation on operating income and a summarization of the change in operating income between Year $1$ and Year $2.$