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Author Question: Following a strategy of product differentiation, Somerset Corporation makes a high-end computer ... (Read 83 times)

c0205847

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on: Mar 6, 2021
Following a strategy of product differentiation, Somerset Corporation makes a high-end computer monitor, CM7. Somerset Corporation presents the following data for the years 2017 and 2018: 

20172018
Units of CM 7 produced and sold5,0006,500
Selling price$400$440
Direct materials (pounds)16,00016,375
Direct materials costs per pound$40$44
Manufacturing capacity for CM7 (units)10,00010,000
Conversion costs$1,000,000$1,100,000
Conversion costs per unit of capacity$100$110
Selling and customer-service capacity (customers)6058
Total selling and customer-service costs$360,000$362,500
Selling and customer-service capacity cost per customer$6,000$6,250

Somerset Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2018. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 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. Somerset Corporation has 100 customers in 2017 and 115 customers in 2018. The industry market size for high-end computer monitors increased 5% from 2017 to 2018.

Required: 
a.What is operating income for 2017?
b.What is operating income in 2018?
c.What is the change in operating income from 2017 to 2018? 
Horngren's Cost Accounting: A Managerial Emphasis ¦ Datar, Rajan ¦ 16th Edition
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Marked as best answer by c0205847 on Mar 6, 2021

kjohnson

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Reply #1 on: Mar 6, 2021
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c0205847

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Reply 2 on: Mar 6, 2021
Great answer, keep it coming :)

olderstudent

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Reply 3 on: Yesterday
Excellent

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