Hamadi Corporation manufactures an electronic component 'AZ-101'. This component is significantly different from its peer companies and has gained a high repute. The company presents the following data for 2008 and 2009.
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2008
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2009
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1. Quantity of AZ-101 produced and sold
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200
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210
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2. Selling Price
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$40,000
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$42,000
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3. Direct Materials (Quantity in Kilograms)
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300,000
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310,000
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4. Conversion cost per unit of capacity
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$8,000
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$8,100
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5. Manufacturing capacity in units
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250
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250
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6. Direct Materials costs per Kg
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$8.00
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$8.50
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7. Total Conversion Cost
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$2,000,000
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$2,025,000
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8. Design Staff
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12
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12
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9. Selling and customer service capacity cost per customer
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$10,000
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$9,900
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10. Selling and customer service capacity
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100 customers
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95 customers
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11. Total Design Costs
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$1,200,000
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$1,212,000
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12. Total Selling and customer service cost
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$1,000,000
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$940,500
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13. Design cost per employee
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$100,000
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$101,000
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The management uses its discretion every year in the beginning as to how many design staff members are required. The design staff and its costs have no direct relationship with the quantity of 'AZ-101' produced or the number of customers to whom this product is sold. Though company takes all due diligence in producing no defective machines, however, it wants to reduce materials usage per 'AZ-101' product in 2009. Conversion costs in each year depend on production capacity defined in terms of 'AZ-101' units that can be produced, not the actual units produced. Selling and customer service costs depend on the number of customers the company can support, not the actual number of customers it serves. The company has 75 customers in 2008 and 80 customers in 2009.
Based on the above facts and figures, attempt the following questions:-
(a) Calculate the operating income of the company in 2008 and 2009.
(b) Is Hamadi's strategy one of product differentiation or cost leadership? Explain briefly.
(c) Describe briefly the key elements Hamadi should include in its balanced scorecard and the reasons it should do so.
(d) Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2008 to 2009.
(e) Comment on your answer in requirement (d). What does each of these components indicate?