Question

Rinaldo & Sons buys T-shirts in bulk, applies its own trendsetting silk-screen designs, and then sells the T-shirts to a number of retailers. Rinaldo wants to be known for its trendsetting designs, and it wants every teenager to be seen in a distinctive Rinaldo T-shirt. Rinaldo presents the following data for its first two years of operations, 2016 and 2017 (Click the icon to view the data.) Read the requirements. Requirement 1. Calculate Rinaldo's operating income in both 2016 and 2017 2016 2017 Revenues Costs hoose from any list or enter any number in the input fields and then continue to the next question. Module 12: Ch 13 Post-Test O of op Type here to search OBLê e 3:55 PM 5/13/2020

Answer 1

	2016	2017
T shirts purchase	214240	258000
T shirts discarded	8240	10500
T shirts sold	206000	247500
Average Selling price	33	34
Average Cost price	18	16
Admin Capacity	4800	4550
Admin Cost	1824000	1774500
Admin cost per customer	380	390

The Reference components ("A" to "N") are as follows:
A	4800
B	4550
C	214240
D	258000
E	206000
F	247500
G	18
H	16
I	380
J	390
K	33
L	34
M	257400
N	5,767

M:
(Input required to produce 247500 units of 2017 in 2016 instead of 206000 units actually produced in 2016, Assuming Same Input-Output ratio of 2016)
(C/E)*F
+214240/206000*247500	257400
N:
(Units of Capacity required to produce 247500 units of 2017 in 2016 instead of 206000 units actually produced in 2016, Assuming Same Capacity-Output ratio of 2016)
(A/E)*F
+4800/206000*247500	5,767

Revenues = Actual units of Output sold * Selling price

For 2016 : E * K

For 2017 : F * L

Direct Material = Units of Input used * Input Price

For 2016 : C * G

For 2017 : D * H

Admin cost = Actual Units of capacity * Price per unit of capacity (Data given)

For 2016 : A * I

For 2017 : B * J

Total Costs = Direct material + Admin cost

Operating Income = Revenue - Total costs

Calculation of Operating Income
	2016	2017
Revenues	67,98,000	84,15,000
Cost
Direct Material	38,56,320	41,28,000
Admin cost	18,24,000	17,74,500
Total Costs	56,80,320	59,02,500
Operating Income	11,17,680	25,12,500
Change in Operating iNcome		13,94,820

GROWTH
(Actual output 2017 - Actual output 2016) * Selling price 2016	Revenue effect of Growth
(F-E)*K	1369500
(Input units required to produce 2017 output in 2016 - Actual Input units used in 2016) * Input price 2016	Cost effect of Growth for Variable cost
(M-C)*G	776880
(Input Capacity units required to produce 2017 output in 2016 - Actual Input Capacity units in 2016) * Input Capacity price per unit 2016	Cost effect of Growth for Fixed cost
(N-A)*I
Capacity units In 2016 is 4800 and in 2017 is 4550
It can be seen that Adequate capacity existed in 2016 for produsing 2017 output
Thus in Formula, Actual Input capacity will be used instead of Unit Capacity required in 2016
Accordingly,
(Actual Input Capacity units in 2016 - Actual Input Capacity units in 2016) * Input Capacity price per unit 2016	Cost effect of Growth for Fixed cost
(A-A)*I	0
Revenue effect of Growth	1369500
Cost effect of Growth	-776880
Change in Operating Income due to Growth	592620

PRICE RECOVERY
(Selling price 2017 - Selling price 2016) * Actual output 2017	Revenue effect of Growth
(L-K)*F	247500
(Input price 2017 - Input price 2016) * Input units required to produce 2017 output	Cost effect of Growth for Variable cost
(H-G)*M	-514800
(Price per unit capacity 2017 - Price per unit capacity 2016 ) * Actual unit capacity 2016	Cost effect of Growth for Fixed cost
(J-I)*A	48000
Revenue effect of Growth	247500
Cost effect of Growth (V)	514800
Cost effect of Growth (F)	-48000
Change in Operating Income due to Price Recovery	714300
PRODUCTIVITY
(Actual input units 2017 - Units required to produce 2017 output in 2016) * Input price 2017	Cost effect of Growth for Variable cost
(D-M)*H	9600
Actual input capacity 2017 - Actual input capacity 2016) * Input capacity price per unit 2017	Cost effect of Growth for Fixed cost
(B-A)*J	-97500
Change in Operating Income due to Productivity	87900

Change due to:
Growth	5,92,620
Price Recovery	7,14,300
Productivity	87,900
Total	13,94,820
Change in Operating Income	13,94,820

Requirement 3:

significant INCREASE in operating income

due to PRODUCT DIFFERENTIATION STRATEGY

continue to CHARGE PREMIUM PRICE while growing sales

earn ADDITIONAL OPERATING INCOME BY IMPROVING PRODUCTIVITY