Revenue and Year 2003- Revenue and Year 2003-

Income Cost Effects Output Cost Effects of Output & Cost Effect of Income
Statement of Growth Year 2002- Price-Recovery Prices Productivity Statement
Amounts Component Prices, Component Year 2002 Component Amounts
in 2002 in 2003 I/O ratio in 2003 I/O ratio in 2003 in 2003
(1) (2) (3) (4) (5)

Revenues 15,000 17,000 17,000 17,000

x $20 x $20 x $25 x $25
$300,000 $340,000 $425,000 $425,000
$40,000 F $85,000 F $-0-
Costs:
Variable 15,000 17,000 17,000 17,000
x $12 x $12 x $14 x $14
$180,000 $204,000 $238,000 $238,000
$24,000 U $34,000 U $-0-
Fixed 4 x $15,000= 4 x $15,000= 4 x $15,000= 4.53 x $15,000=
$60,000 $-0- $60,000 $-0- $60,000 $8,000 U $68,000

Total costs $240,000 $24,000 U $264,000 $34,000 U $298,000 $8,000 U $306,000

Operating income $ 60,000 $16,000 F $ 76,000 $51,000 F $127,000 $8,000 U $119,000

$59,000 F
Change in operating income
Effect of the industry market size factor on operating income: Effect of the companys market share factor on operating income

17,000 15,000 = 2,000 2,000 1,350 = 650

15,000 x 9% = 1,350 650/2,000 = 32.5%
1,350/2,000 = 67.5% $16,000 x 32.5% = $5,200
$16,000 x 67.5% = $10,800
$5,200 could be included in effect of cost leadership on operating income
if company was pursuing that strategy (doubtful with facts as given)
$5,200 could be included in effect of product differentiation on operating income if
company was pursuing that strategy (would fit with increased cost of product)
Under different assumptions of how the change in selling price affects the quantity of product sold, the analyst would attribute different amounts to
different strategies. Note the placement of the companys increase in market share for Chipset (chapter examplecost leadership) and for
Westwood (problem for self-studyproduct differentiation).