What is the net effect on operating income as a result of the growth component?

ACCOUNTING

Multiple Choice

Bugos Company makes a household appliance with model number XX300. The goal for 20x4 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 XX300 units that can be produced. The industry market size for appliances increased 5% from 20x3 to 20x4. The following additional data are available for 20x3 and 20x4:



20x3 20x4

Units of XX300 produced and sold 10,000 10,500

Selling price $100 $95

Direct materials (square feet) 30,000 29,000

Direct material costs per square foot $10 $11

Manufacturing capacity for XX300 (units) 12,500 12,000

Total conversion costs $250,000 $240,000

Conversion costs per unit of capacity $20 $20



What is the net effect on operating income as a result of the growth component?

a. Operating income increased due to increased market share.

b. Operating income decreased due to increased market share.

c. Operating income increased due to industry growth.

d. Operating income decreased due to industry growth.

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