Components of changes in operating income

Question

Calculate the growth, price-recovery, and productivity components of changes in operating income between 2004 and 2005.

Create schedules for Revenue and Cost Effects of Growth, Revenue and Cost Effects of Price Recovery, Cost Effects of Productivity, and a Strategic Analysis of Profitability.

Originial Data
			2004		2005
1	Pieces of clothing purchased and sold		40,000		40,000
2	Average selling price		$60		$59
3	Average cost per piece of clothing		$40		$41
4	Selling and customer-service capacity		51,000		43,000
5	Selling and customer-service costs		$357,000		$296,700
6	Selling and cust svc cap costs per cust		$7.00		$6.90
7	Purchasing and administrative capacity		980		850
8	Purchasing and administrative costs		$245,000		$204,000
9	Purch and admin cap costs per design		$250		$240

	Income Statement
	Halsey Company
	For the Year Ending December 31, 2005
			2004		2005
	Revenue		2,400,000		2,360,000
	Direct materials costs		1,600,000		1,640,000
	Selling and customer-service costs		357,000		296,700
	Purchasing and adminstrative costs		245,000		204,000
	Total costs		2,202,000		2,140,700
	Operating Income		198,000		219,300
			21,300
			Increase in operating income
Revenue and Cost Effects of Growth
	Revenue effect of growth		0
	Direct materials costs		40,000
	Selling and customer service costs		0
	Purchasing and administrative costs		-21,075
	Total effect of growth		18,925
Revenue and Cost Effects of Price Recovery
	Revenue effect of price recovery		-40,000
	Direct materials costs		40,000
	Selling and customer service costs		-5,100
	Purchasing and administrative costs		-8,641
	Total effect of price recovery		-13,741

Cost Effect of Productivity
	Revenue effect of productivity		0
	Direct materials costs		0
	Selling and customer service costs		-308,900
	Purchasing and administrative costs		-234,350
	Total effect of price productivity		-543,250