Question

Suppose that during 2017, the market for Mason's special-purpose machines grew by 6%. All increases in market share (that is, sales increases greater than 6%) are the result of Mason's strategic actions. Mason Corporation makes a special-purpose machine, D4H, used in the textile industry. Mason has designed the D4H machine for 2017 to be distinct from its competitors. It has been generally regarded as a superior machine. Mason presents the following data for 2016 and 2017. E: (Click the icon to view the data.) (Click the icon to view additional information.) Read the requirement. Calculate how much of the change in operating income from 2016 to 2017 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. (Round your answers to the nearest whole number. Label the variance as favorable (F) or unfavorable (U).) Change in operating income due to industry-market size Choose from any drop-down list and then click Check Answer.

Answer 1

1.

Change in operating income due to growth	X	(Growth in size/ Change in sales)	=	Change in operating Income due to industry market size
619431	X	(13.8/25)	=	341926	F

Growth due strategic actions =230* 6% = 11.8 units

Change in sales = 255-230 = 25 units

2.

Change in operating income due to product differentiation	X	Growth in number due to product Differentiation / Change in sales)	+	Change in operating income due to price recovery	=	Change in operating Income due to product differentiation
619431		(11.2/25)	+	90467	=	367972	F

Growth due to product differentiation = 25- 13.8= 11.2 units

3.

Change in operating income due to cost leadership

253101

F

4. The management has an overall favorable variances. Hence it has been successful in implementing the strategy.