Use the 2006 Form 10-K for Black & Decker Corp. (B&D) to complete the requirements below. To obtain the Form 10-K you can use the EDGAR system following the instructions in Appendix A, or it can be found under “Investor Relations” on the company’s corporate website: www.bdk.com. Be sure to read carefully the following portions of the document.

■ “General Development of the Business” on page 1.

■ “Consolidated Statement of Earnings” on page 32.

Required

a. Calculate the percentage decrease in B&D’s sales and its “operating income” from 2005 to 2006.

b. Would fixed costs or variable costs be more likely to explain why B&D’s operating earnings decreased by a bigger percentage than its sales?

c. On page 38 B&D reported that it incurred product development costs of $139.4 million in 2006. If this cost is thought of in the context of the number of units of products sold, should it be considered as primarily fixed or variable in nature?

d. If the product development costs are thought of in the context of the number of new products developed, should it be considered as primarily fixed or variable in nature?