4) Following a strategy of product differentiation, Somerset Corporation makes a high-end computer monitor, CM7 Somerset Corporation presents the following data for the years 2017 and 2018: 2017 2018 Units of CM 7 produced and sold 5,000 6,500 Seling price $400 $440 Direct materials (pounds) 16,000 16,375 Direct materials costs per pound $40 $44 Manufacturing capacity for CM7 (units) 10,000 10,000 Conversion costs $1,000,000 $1,100,000 Conversion costs per unit of capacity $100 $110 Selling and customer service capacity (customers) 60 58 Total selling and customer service costs $360,000 $362,500 Seling and customer-service capacity cost per customer $6.000 $6.250 Somerset Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2018. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 units that can be produced. Selling and customer service costs depend on the number of customers that the customer and service functions are designed to support, Somerset Corporation has 100 customers in 2017 and 115 customers in 2018. The industry market size for high-end computer monitors increased 5% from 2017 to 2018. Required: a. What is operating income for 2017? b. What is operating income in 2018? C What is the change in operating income from 2017 to 2018? 5) A company pursuing cost leadership may try to further analyze the change in operating income even when the growth component is highly favorable. Why? 6) Harriet has been reviewing the accounting system for her company and she is very concerned about the accounting for spoilage. It appears that spoilage is accounted for only at the end of the processing cycle. While this concept is acceptable in general, Harriet believes that a better method can be found to properly account for the spoilage when it occurs. She believes that there must be something better than the weighted-average method of accounting for sporlage. She would like the company to use a method that provides closer tracking of the spoilage with the accounting for the spolage. Required: Discuss the problems Harriet is having with the accounting system