Reference no: EM132585926

Hi-Tech Kitchen Inc, makes a high-end kitchen range hoods, Data for 2018 and 2019 follow:

	2018	2019
1.         Units produced and sold	40,000	42,000
2.         Selling Price	P 100	P 110
3.         Direct materials (square feet)	120,000	123,000
4.         Direct materials cost per square foot	P 10	P 11
5.         Manufacturing capacity	50,000 units	50,000 units
6.         Conversion costs	P 1,000,000	P 1,100,000
7.         Conversion cost per unit of capacity (6 + 5)	P 20	P 22
8.         Selling & customer service capacity	30 customers	29 customers
9.         Selling & customer service costs	P 720,000	P 725,000
10.    Cost per customer of selling & service capacity (9+8)	P 24,000	P 25,000

In 2019. Hi-Tech produced no defective units and reduced direct materials usage per unit of product. Conversion
costs in each year are tied to manufacturing capacity. Selling and customer service costs are related to the number of
customers that the selling and service functions are designed to support. Hi-Tech has 23 customers (wholesalers) in
2018 and 25 customers in 2019.

Question 1. How do you calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2018 to 2019.

Question 2. Suppose during 2019, the market size for Hi-Tech kitchen ranges grew 3% in terms of number of units and all increases in market share (that is, increases in the number of units sold greater than 3%) are due to Hi-Tech's product differentiation strategy. How much of the change in operating income from 2018 - 2019 is due to the industry market size factor, cost leadership and product differentiation.