Following a strategy of product differentiation, Izzy\'s Limited Company makes a

ID: 2403409 • Letter: F

Question

Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy;s Limited presents the following data for the years 2017 and 2018:

Units of XT15 produced and sold

?Izzy's Limited 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.? Izzy's Limited had160 customers in 2017 and165 customers in 2018.

What is operating income for? 2017?

A. $4,850,800

B. $6,159,700

C. $7,485,800

D. $5,005,800

2017 2018

Units of XT15 produced and sold

56,000 58,000 Selling price 400 430 Direct materials (square feet) 157000 160200 Direct materials costs per square foot 54 58 Manufacturing capacity in units of XT 15 63100 63100 Total conversion costs 6436200 6751700 Conversion costs per unit of capacity 102 107 Selling and customer-service capacity (customers) 170 170 Total seling and customer-service costs 2635000 2737000 Selling and customer-service cost per customer 15500 16100

Explanation / Answer

Correct Answer (A) $ 4850800.00

Calculation of Operating Income

Year 2017

Sales Revenue

$ 22,400,000.00

Less: Material Cost

$ 8,478,000.00

Less: Conversion Cost

$ 6,436,200.00

Less: Selling and Customer Service Cost

$ 2,635,000.00

Net Operating Income

$ 4,850,800.00