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Question - Pineway Electric Limited (PEL) makes electric motors. It competes and plans to grow by selling high-quality motors at a low price and quickly delivering them to customers after receiving orders. Many other manufacturers also produce similar motors. PEL believes that continuously improving its production processes and having satisfied employees are critical to implementing its strategy in 2020. The data below relate to 2019 and 2020:
2019
2020
1. Number of motors produced and sold
5,000
5,900
2. Selling price per motor
$400
$360
3. Manufacturing labour-hours
7,500
8,000
4. Cost per manufacturing labour-hour
$45
$55
5. Factory support capacity (in number of motors)
7,000
6. Total factory support costs
$336,000
$420,000
7. Total factory support cost per motor
$48
$60
Manufacturing labour-hour costs are variable costs. Factory support costs for each year depend on the factory support capacity that PEL chooses to maintain each year (i.e. the number of motors it can produce each year). Factory support costs do not vary with the actual number of motors made that year.
(a) Identify and briefly explain PEL's 2019 strategy.
(b) Describe two key measures you would expect to see under each of the four perspectives in PEL's balanced scorecard for 2019.
(c) Calculate operating profit in 2019 and 2020
(d) Calculate the change in operating profit due to growth.
(e) Calculate the change in operating profit due to price recovery
(f) Calculate the change in operating profit due to productivity.
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