Esparza Associates is a construction engineering firm that prepares detailed construction drawings for single-family homes. The market for this service is very competitive. To compete successfully Esparza must deliver quality service at low cost. Esparza presents the following data for 2019 and 2020. -C Suppose that during 2020, the market for construction drawing jobs increases by 6%. Assume that any increase in market share more than 6% and any decrease in selling price are the result of strategic choices by Esparza's management to implement its strategy. Calculate how much of the change in operating income from 2019 to 2020 is due to the industry-market-size factor. Begin by selecting the formula you will use. Then enter the amounts and calculate the change in operating income due to the industry-market-size factor. Determine whether the amount has a favorable effect on operating income or unfavorable effect. (Label the variance as favorable (F) or unfavorable (U).) Growth component × ( Unit increase from market size Change in operating income ÷ Total unit increase = due to industry-market size 142,000 × ( 27 100 1)= $ 38,340 F $ Before calculating the change in operating income due to cost leadership, you must calculate the growth in market share due to cost leadership. Begin by selecting the formula you will use. Then enter the amounts and calculate the growth in market share due to cost leadership. Determine whether the amount has a favorable effect on operating income or unfavorable effect. (Label the variance as favorable (F) or unfavorable (U).) Unit increase Growth component × ( from market share Total unit increase )= Growth in market share due to cost leadership × ( = Esparza Associates is a construction engineering firm that prepares detailed construction drawings for single-family homes. The market for this service is very competitive. To compete succe low cost. Espa 2020. Reference Suppose that during 2020, the market for construction drawing jobs increases by 6%. Assume that any increase in market share more than 6% and any tegic ☑ hent its Calculate how The growth, price-recovery and productivity components of the change in operating income from 2019 to 2020 are as follows: Begin by selec the industry-m (Label the vari Revenue effect of growth $ 370,000 F to 228,000 ble effect. Cost effect of growth U $ 142,000 Change in operating income due to growth F ncome Growth co ket size Revenue effect of price recovery $ $ 142 110,000 U 55,500 F Cost effect of price recovery U Before calcula cost leadership $ 165,500 e due to Change in operating income due to price recovery U t share due to cost lea . (Label $ 156,000 the variance as Change in operating income due to productivity F Growth co Data table Print Done share ership 2019 2020 1. Number of jobs billed 2. Selling price per job 450 550 $ 3,700 $ 3,500 3. Engineering labor-hours 27,000 29,000 4. Cost per engineering labor-hour 38 $ 39 5. Engineering support capacity (number of jobs the firm can do) 6. Total cost of engineering support (space rent, equipment, etc.) 7. Engineering support-capacity cost per job 750 750 $ 225,000 $ 247,500 300 $ 330 Engineering labor-hour costs are variable costs. Engineering support costs for each year depend on the engineering support capacity that Esparzachooses to maintain each year (that is, the number of jobs it can do each year). Engineering support costs do not vary with the actual number of jobs done in a year.

Esparza Associates is a construction engineering firm that prepares detailed construction drawings for single-family homes. The market for this service is very competitive. To compete successfully Esparza must deliver quality service at low cost. Esparza presents the following data for 2019 and 2020. -C Suppose that during 2020, the market for construction drawing jobs increases by 6%. Assume that any increase in market share more than 6% and any decrease in selling price are the result of strategic choices by Esparza's management to implement its strategy. Calculate how much of the change in operating income from 2019 to 2020 is due to the industry-market-size factor. Begin by selecting the formula you will use. Then enter the amounts and calculate the change in operating income due to the industry-market-size factor. Determine whether the amount has a favorable effect on operating income or unfavorable effect. (Label the variance as favorable (F) or unfavorable (U).) Growth component × ( Unit increase from market size Change in operating income ÷ Total unit increase = due to industry-market size 142,000 × ( 27 100 1)= $ 38,340 F $ Before calculating the change in operating income due to cost leadership, you must calculate the growth in market share due to cost leadership. Begin by selecting the formula you will use. Then enter the amounts and calculate the growth in market share due to cost leadership. Determine whether the amount has a favorable effect on operating income or unfavorable effect. (Label the variance as favorable (F) or unfavorable (U).) Unit increase Growth component × ( from market share Total unit increase )= Growth in market share due to cost leadership × ( = Esparza Associates is a construction engineering firm that prepares detailed construction drawings for single-family homes. The market for this service is very competitive. To compete succe low cost. Espa 2020. Reference Suppose that during 2020, the market for construction drawing jobs increases by 6%. Assume that any increase in market share more than 6% and any tegic ☑ hent its Calculate how The growth, price-recovery and productivity components of the change in operating income from 2019 to 2020 are as follows: Begin by selec the industry-m (Label the vari Revenue effect of growth $ 370,000 F to 228,000 ble effect. Cost effect of growth U $ 142,000 Change in operating income due to growth F ncome Growth co ket size Revenue effect of price recovery $ $ 142 110,000 U 55,500 F Cost effect of price recovery U Before calcula cost leadership $ 165,500 e due to Change in operating income due to price recovery U t share due to cost lea . (Label $ 156,000 the variance as Change in operating income due to productivity F Growth co Data table Print Done share ership 2019 2020 1. Number of jobs billed 2. Selling price per job 450 550 $ 3,700 $ 3,500 3. Engineering labor-hours 27,000 29,000 4. Cost per engineering labor-hour 38 $ 39 5. Engineering support capacity (number of jobs the firm can do) 6. Total cost of engineering support (space rent, equipment, etc.) 7. Engineering support-capacity cost per job 750 750 $ 225,000 $ 247,500 300 $ 330 Engineering labor-hour costs are variable costs. Engineering support costs for each year depend on the engineering support capacity that Esparzachooses to maintain each year (that is, the number of jobs it can do each year). Engineering support costs do not vary with the actual number of jobs done in a year.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 10EB: Keleher Industries manufactures pet doors and sells them directly to the consumer via their web...

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