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McCarty Associates is a construction engineering firm that prepares detailed construction drawings for single-family homes. The market for this service is very competitive. To compete successfully McCarty must deliver quality service at low cost. McCarty presents the following data for 2019 and 2020.

		2019	2020
1.	Number of jobs billed	450	600
2.	Selling price per job	$3,700	$3,300
3.	Engineering labor-hours	27,000	30,000
4.	Cost per engineering labor-hour	$38	$39
5.	Engineering support capacity (number of jobs the firm can do)	800	800
6.	Total cost of engineering support (space rent, equipment, etc.)	$208,000	$264,000
7.	Engineering support-capacity cost per job	$260	$330

Engineering labor-hour costs are variable costs. Engineering support costs for each year depend on the engineering support capacity that McCarty chooses to maintain each year (that is, the number of jobs it can do each year). Engineering support costs do not vary with the actual number of jobs done in a year.

Requirements:

1. Calculate the operating income of McCarty Associates in 2019 and 2020.

2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2019 to 2020.

3. Comment on your answer in requirement 2. What do these components indicate?

Requirement 1. Calculate the operating income of

McCarty Associates in 2019 and 2020.

	2019
Revenues
Costs
Engineering labor costs
Engineering support costs
Total costs
Operating income

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