Direct materials costs per square foot Manufacturing capacity in units of XT15 T
ID: 2592350 • Letter: D
Question
Direct materials costs per square foot Manufacturing capacity in units of XT15 Total conversion costs Conversion costs per unit of capacity Selling and customer-service capacity (customers) Total selling and customer service costs Selling and customer-service capacity cost per customer S50 62,500 $6,250,000 S100 150 $2.250,000 S15,000 $55 62,500 $6,875,000 $110 150 $2,343,750 $15,625 Arseniq produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Arseniq had 140 customers in 2014 and 145 customers in 2015 What is the net effect on operating income as a result of the price -recovery component? O A $1,118,750 U 0 B $875,000 F Xc. $875,000 U D $1,118,750 FExplanation / Answer
Answer :D)$1,118,750(F)
A)Revenue effect on the price-recovery component = ($550 -$500) × 52,500
= $2,625,000 F
B)Units of input required to produce 2015 output in 2014
= (150,000/50,000) × 52,500
= 157,500
Cost effect of price-recovery for direct materials = ($55 - $50) × 157,500
= $787,500 U
Cost effect of price-recovery for conversion costs = ($110 - $100) × 62,500
= $625,000 U
Cost effect of price-recovery for selling and customer-service costs
= ($15,625 - $15,000) × 150
= $93,750
Cost effect of the price-recovery component
= $787,500 U+ $625,000 U+ $93,750 = $1,506,250 U
Net effect on operating as a result of the price recovery component
= $2,625,000(F)-$1,506,250(U)
= $1,118,750
Net effect on operating as a result of the price recovery component = $1,118,750(F)
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