Question:
1. Strategic analysis of operating income (continuation of 13-30). Refer to Problem 13-30. As a result of the actions taken, quality has significantly improved in 2011 while rework and unit costs of the Mini have decreased. Music Master has reduced manufacturing capacity because capacity is no longer needed to support rework. Music Master has also lowered the Mini's selling price to gain market share and unit sales have increased. Information about the current period (2011) and last period (2010) follows:
Conversion costs in each year depend on production capacity defined in terms of units of Mini that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Music Master can support, not the actual number of customers it serves. Music Master has 70 customers in 2010 and 80 customers in 2011.
Required
1. Calculate operating income of Music Master Company for 2010 and 2011.
2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2010 to 2011.
3. Comment on your answer in requirement 2. What do these componentsindicate?