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Review Exercises 1. The following information is from the Solution to the Featured Exercise, pp.172173: Castleton Companys strategy is cost leadership. Change in operating income due to growth component $ 64,800 F Change in operating income due to price-recovery component 82,320 F Change in operating income due to productivity component 11,840 F Change in operating income from 2010 to 2011 $158,960 F During 2011 the unit sales for Castletons fertilizer product, Turfgro, increased by 4% (from 10,000 tons in 2010 to 10,400 tons in 2011). A trade association reports the industry market size for this type of fertilizer increased by 3% in 2011. The increase in Turfgros market share (that is, its unit sales grew by more than the 3% growth in industry market size) and the increase in its selling price are due to customers perceiving this product to be a superior fertilizer. a. Compute the change in operating income from 2010 to 2011 that is due to three factors: industry market size, product differentiation and cost leadership. b. How successful has Castleton been in implementing its cost leadership strategy for Turfgro? Explain. 2. (Appendix) Vander Lind Industries makes a chemical product using direct materials and direct manufacturing labor, which are partial substitutes for each other. The company reported the following data for the last two years of operations: 2010 2011 Output units 8,500 10,200 Direct materials used (in kilograms) 5,700 7,000 Direct material cost per kilogram $3.20 $3.00 Direct manufacturing labor-hours used 700 800 Wages per labor-hour $14 $15 Manufacturing capacity in output units 12,000 11,500 Manufacturing overhead costs $15,000 $14,950 Manufacturing overhead costs per unit of capacity $1.25 $1.30 a. Compute the partial productivity ratios for each input for each year, and compute the change in partial productivity for each input from 2010 to 2011. b. Compute the change in total factor productivity from 2010 to 2011.

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