solution

Caillie Building Services has been in business for two years. As it is a relatively new firm in a competitive market it is trying to deliver quality services at a low cost. Caillie presents the following data for 2020 and 2021.

	2020	2021
Number of jobs billed	40	50
Selling price per job	$32,000	$30,000
Builder labour hours	24,000	27,000
Cost per builder labour hour	$35	$36
Builder support capacity (number of jobs the firm can do)	60	60
Total cost of labourer support	$168,000	$180,000
Labourer support capacity cost per job	$2,800	$3,000

Builder labour hour costs are variable costs. Labourer support costs are dependent on the Labourer capacity Caillie chooses each year (that is the number of jobs the firm can do each year). Labourer support costs do not change with the actual number of jobs each year.

(a) Is Caillie’s strategy one of product differentiation or cost leadership? Explain briefly.

(b) Calculate the growth, price recovery and productivity components that explain the changes in operating income from 2020 to 2021.