Author Question: Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, ... (Read 87 times)

vicotolentino · **on:** Mar 6, 2021

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:

2017

2018

Units of XT15 produced and sold

55,000

58,500

Selling price

$400

$440

Direct materials (square feet)

150,000

153,300

Direct materials costs per square foot

$51

$55

Manufacturing capacity in units of XT15

62,700

Total conversion costs

$6,270,000

$6,708,900

Conversion costs per unit of capacity

$100

$107

Selling and customer-service capacity (customers)

150

Total selling and customer-service costs

$2,325,000

$2,426,250

Selling and customer-service capacity cost per customer

$15,500

$16,175

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 had 135 customers in 2017 and 140 customers in 2018.

What is the change in operating income from 2017 to 2018?
◦ $2,418,350 U
◦ $3,740,000 F
◦ $2,418,350 F
◦ $3,740,000 U

SamMuagrove · **Reply #1 on:** Mar 6, 2021

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