Refer to the information in Exercise 13-18.
1. Calculate the change in operating income of Grey Corporation in 2015 and 2016.
2. Calculate the growth, price-recovery, and productivity components of changes in operating income between 2015 and 2016.
3. Comment on your answer in requirement 2. What do these components indicate?
Grey Corporation makes a special-purpose D4H machine used in the textile industry. Grey has designed the D4H machine for 2015 to be distinct from its competitors. It has been generally regarded as a superior machine. Grey presents the following data for the years 2015 and 2016.
Grey produces no defective machines, but it wants to reduce direct materials usage per D4H machine in 2016. Manufacturing conversion costs in each year depend on production capacity defined in terms of D4H units that can be produced, not the actual units of D4H produced. Selling and customer-service costs depend on the number of customers that Grey can support, not the actual number of customers Grey serves. Grey has 75 customers in 2015 and 80 customers in 2016. At the start of each year, management uses its discretion to determine the number of design staff for the year. The design staff and costs have no direct relationship with the quantity of D4H produced or the number of customers to whom D4H is sold.
1. Is Grey’s strategy one of product differentiation or cost leadership? Explain briefly.
2. Describe briefly key elements that you would include in Grey’s balanced scorecard and the reasons for doing so.
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