Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2015 and 2016:
2015 2016
Units of CM 7 produced and sold 5,000 5,500
Selling price $490 $495
Direct materials (kilograms) 20,000 19,460
Direct materials costs per kilogram $30 $34
Manufacturing capacity for CM7 (units) 10,000 8,000
Conversion costs $1,000,000 $840,000
Conversion costs per unit of capacity $100 $105
Selling and customer-service capacity (customers) 60 56
Total selling and customer-service costs $360,000 $344,400
Selling and customer-service capacity cost per customer $6,000 $6,150
Sting Corporation wants to reduce direct materials usage per unit of CM7 in 2016. 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. Sting Corporation has 100 customers in 2015 and 115 customers in 2016. The industry market size for high-end computer monitors increased 5% from 2015 to 2016.
Required:
a. Calculate the effect on the change of operating income as a result of the productivity component.
b. What is the partial productivity ratio for the direct materials for each year? (round to 4 decimal places) Give a plausible underlying reason for what may have caused the ratio to change.
c. What is the total factor productivity for 2016 and the total factor productivity benchmark based on input costs that would have been used in 2015 to produce 2016 output?(round to 4 decimal places)
d. Provide two key success factors, and a corresponding measure for each, that relate to Sting Corporation's internal business process balanced scorecard perspective.
Quick Reply
