Question

question 19

following a strategy of product differentiation , Barry company makes an XX 300 . Barry company presents the following data for the years 1 and 2

year 1 year 2

units of xx 300 produced and sold 10000 10800

selling price $100 $115

direct material (litres) 30000 31900

direct material costs per liter $15 $16

manufacturing capacity for xx 300 (units) 12500 12500

total manufacturing conversion costs $250000 275000

manufacturing conversion costs per unit of capacity $20 $22

selling and customer service capacity (customers) 30 29

total selling and customers service costs $90000 90625

cost per customer of selling & customer service capacity 3000 $3120

Barry company produces no defective units but it wants to reduce direct materials usage per unit of xx 300 in year 2 . manufacturing conversion costs in each year depend on production capacity defined in terms of xx 300 units that can be produced selling and customer service costs depend on the number of customers that the customers and service functions are designed to support .neither conversion costs or customer service costs are affected by changes in actual volume . Barry company has 23 customers in year 1 and 25 customers in year 2 the industry market size for high end appliances increased 5% from year 1 to year 2

1- what is the Barry company productivity component of change in operating income ?

1-$11120 unfavourable

2-$33520 favourable

3-$33520 unfavourable

4-11120 favourable

5-31620 favourable

2-what is the Barry company net increase in operating income as a result of the price recovery component?

1-6100 favourable

2-101000 favourable

3-2700 unfavourable

4-101000 unfavourable

5-6100 unfavourable

Answer 1

The Productivity Component
	Direct material Cost	(31900-32400)*$16	$     (8,000.00)
	Manufacturing conversion cost	(12500-12500)*$22	0
	Selling & customer-service costs	(29-30)*$3120	$     (3,120.00)
	Cost effect of Productivity Component		$   (11,120.00) U

The Price Recovery Component
	Revenue effect of price recovery	($115-$100)*10800	$   162,000.00
	Direct material Cost	($15-$16)*32400	$   (32,400.00)
	Manufacturing conversion cost	($20-$22)*12500	$   (25,000.00)
	Selling & customer-service costs	($3000-$3120)*30	$     (3,600.00)
	Cost effect of Price recovery		$   101,000.00 F