Arellano 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 Arellano must deliver quality service at low cost. Arellano presents the following data for 2019 and 2020. Engineering labor-hour costs are variable costs. Engineering support costs for each year depend on the engineering support capacity that Arellano 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. Requirement 1. Calculate the amount and cost of unused engineering support capacity at the beginning of 2020, based on the number of jobs actually done in 2020. 250 jobs and the cost of unused capacity is $ 92,500 The amount of unused capacity is Requirement 2. Suppose Arellano can add or reduce its engineering support capacity in increments of 50 jobs. What is the maximum amount of costs that Arellano could save in 2020 by downsizing engineering support capacity? Arellano can reduce engineering support capacity by amount of costs Arellano can save by downsizing in 2020. It 50 jobs) because it would for a cost savings of This is the capacity to do the reduce capacity further (by another jobs in 2020. Requirements 1. Calculate the amount and cost of unused engineering support capacity at the beginning of 2020, based on the number of jobs actually done in 2020. 2. Suppose Arellano can add or reduce its engineering support capacity in increments of 50 jobs. What is the maximum amount of costs that Arellano could save in 2020 by downsizing engineering support capacity? 3. Arellano, in fact, does not eliminate any of its unused engineering support capacity. Why might Arellano not downsize? Data table - - 2019 2020 1. Number of jobs billed 2. Selling price per job 300 450 $ 3,500 $ 3,200 3. Engineering labor-hours 20,000 21,000 4. Cost per engineering labor-hour 5. Engineering support capacity (number of jobs the firm can do) 31 $ 700 32 700 6. Total cost of engineering support (space rent, equipment, etc.) $ 245,000 $ 259,000 7. Engineering support-capacity cost per job 350 $ 370 er Data table 1. Number of jobs billed 2. Selling price per job 3. Engineering labor-hours 4. Cost per engineering labor-hour 5. Engineering support capacity (number of jobs the firm can do) 6. Total cost of engineering support (space rent, equipment, etc.) 7. Engineering support-capacity cost per job 2019 2020 450 550 $ 3,700 $ 3,500 27,000 29,000 38 $ 39 750 750 225,000 $ 247,500 300 $ 330 Engineering labor-hour costs are variable costs. Engineering support costs for each year depend on the engineering support capacity that Esparzachooses 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. Reference Revenue effect of growth efore cal Ost leade The growth, price-recovery and productivity components of the change in operating income from 2019 to 2020 are as follows: $ 370,000 F shar harke e to cos e varian Cost effect of growth 228,000 U effect $ 142,000 Change in operating income due to growth F arket Growt Revenue effect of price recovery $ 110,000 U leade 5 Cost effect of price recovery 55,500 U 660 $ 165,500 ow calcu vorable Change in operating income due to price recovery U mount J).) $ 156,000 rowth in Change in operating income due to productivity F hange in Requirement Calculate how much of the change in operating income from 2019 to 2020 is due to the industry-market-size factor, product differentiation, and cost leadership. How successful has Esparza been in implementing its strategy? Explain. Print Done