Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:
Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2013. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 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. Ernsting Corporation has 100 customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors increased 5% from 2012 to 2013.
Required:
a. What is the revenue effect of the growth component?
b. What is the cost effect of the growth component?
c. What is the net effect on operating income as a result of the growth component?

Question

Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:
  Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2013. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 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. Ernsting Corporation has 100 customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors increased 5% from 2012 to 2013.
Required:
a. What is the revenue effect of the growth component?
b. What is the cost effect of the growth component?
c. What is the net effect on operating income as a result of the growth component?

Quizplus · Accepted Answer

The Answer of Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:
  Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2013. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 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. Ernsting Corporation has 100 customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors increased 5% from 2012 to 2013.
Required:
a. What is the revenue effect of the growth component?
b. What is the cost effect of the growth component?
c. What is the net effect on operating income as a result of the growth component?

Following a Strategy of Product Differentiation, Sting Corporation Makes a High-End