Question

(10 points) Odilon Company makes a household appliance with model number X500. The goal for 2019 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10 % from 2018 to 2019. The following additional data are available for 2018 and 2019: 2018 10,000 $100 30,000 $9 12,500 $250,000 $20 2019 11,000 $95 Units of X500 produced and sold Selling price Direct materials (square feet) Direct material costs per square foot Manufacturing capacity for X500 (units) Total conversion costs 29,000 $10 12,000 $240,000 $20 Conversion costs per unit of capacity a) What is operating income for 2018? b) What is operating income for 2019?

Answer 1

A) OPERATING INCOME FOR 2018 = $ 480,000

B) OPERATING INCOME FOR 2019 = $ 515,000

All explanation is given below in detail :

( A )	CALCULATE THE OPERATING INCOME FOR 2018 :
		Amount( $ )
	Sales ( 10,000 units * $ 100 per unit )	$ 1,000,000
	less: Direct materials ( 30,000 sq feet * $ 9 per sq. feet )	( $ 270,000 )
	less: Conversion costs ( 12,500 units * $ 20 per unit )	( $ 250,000 )
	Operating income	$ 480,000
( B )	CALCULATE THE OPERATING INCOME FOR 2019 :
		Amount( $ )
	Sales ( 11,000 units * $ 95 per unit )	$ 1,045,000
	less: Direct materials ( 29,000 sq. feet * $ 10 per sq. feet )	( $ 290,000 )
	less: Conversion costs ( 12,000 units * $ 20 per unit )	( $ 240,000 )
	Operating income	$ 515,000