ACCOUNTING
Multiple Choice
Following a strategy of product differentiation, Lucas Company makes a high-end Appliance, AP15. Lucas Company presents the following data for the years 20x3 and 20x4:
20x3 20x4
Units of AP15 produced and sold 20,000 21,000
Selling price $200 $220
Direct materials (square feet) 60,000 61,500
Direct materials costs per square foot $20 $22
Manufacturing capacity in units of AP15 25,000 25,000
Total conversion costs $1,000,000 $1,110,000
Conversion costs per unit of capacity $40 $44
Selling and customer-service capacity (customers) 60 58
Total selling and customer-service costs $360,000 $362,500
Selling and customer-service capacity cost per customer $6,000 $6,250
Lucas Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in 20x4. Manufacturing conversion costs in each year depend on production capacity defined in terms of AP15 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. Lucas Company has 46 customers in 20x3 and 50 customers in 20x4. The industry market size for high-end appliances increased 5% from 20x3 to 20x4.
What is operating income in 20x4?
a. $1,440,000
b. $1,804,500
c. $364,500
d. $200,000
Click here for the SOLUTION
Friday, November 4, 2011
3. What is operating income for 20x3?
ACCOUNTING
Multiple Choice
Following a strategy of product differentiation, Lucas Company makes a high-end Appliance, AP15. Lucas Company presents the following data for the years 20x3 and 20x4:
20x3 20x4
Units of AP15 produced and sold 20,000 21,000
Selling price $200 $220
Direct materials (square feet) 60,000 61,500
Direct materials costs per square foot $20 $22
Manufacturing capacity in units of AP15 25,000 25,000
Total conversion costs $1,000,000 $1,110,000
Conversion costs per unit of capacity $40 $44
Selling and customer-service capacity (customers) 60 58
Total selling and customer-service costs $360,000 $362,500
Selling and customer-service capacity cost per customer $6,000 $6,250
Lucas Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in 20x4. Manufacturing conversion costs in each year depend on production capacity defined in terms of AP15 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. Lucas Company has 46 customers in 20x3 and 50 customers in 20x4. The industry market size for high-end appliances increased 5% from 20x3 to 20x4.
What is operating income for 20x3?
a. $364,500
b. $1,804,500
c. $1,440,000
d. $200,000
Click here for the SOLUTION
Multiple Choice
Following a strategy of product differentiation, Lucas Company makes a high-end Appliance, AP15. Lucas Company presents the following data for the years 20x3 and 20x4:
20x3 20x4
Units of AP15 produced and sold 20,000 21,000
Selling price $200 $220
Direct materials (square feet) 60,000 61,500
Direct materials costs per square foot $20 $22
Manufacturing capacity in units of AP15 25,000 25,000
Total conversion costs $1,000,000 $1,110,000
Conversion costs per unit of capacity $40 $44
Selling and customer-service capacity (customers) 60 58
Total selling and customer-service costs $360,000 $362,500
Selling and customer-service capacity cost per customer $6,000 $6,250
Lucas Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in 20x4. Manufacturing conversion costs in each year depend on production capacity defined in terms of AP15 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. Lucas Company has 46 customers in 20x3 and 50 customers in 20x4. The industry market size for high-end appliances increased 5% from 20x3 to 20x4.
What is operating income for 20x3?
a. $364,500
b. $1,804,500
c. $1,440,000
d. $200,000
Click here for the SOLUTION
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.
Click here for the SOLUTION
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.
Click here for the SOLUTION
What is the cost effect of the growth component for conversion costs?
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 cost effect of the growth component for conversion costs?
a. $12,500 U
b. Zero
c. $10,000 U
d. $10,000 F
Click here for the SOLUTION
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 cost effect of the growth component for conversion costs?
a. $12,500 U
b. Zero
c. $10,000 U
d. $10,000 F
Click here for the SOLUTION
What is the cost effect of the growth component for direct materials?
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 cost effect of the growth component for direct materials?
a. $15,000 U
b. $10,000 U
c. $10,000 F
d. $16,500 F
Click here for the SOLUTION
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 cost effect of the growth component for direct materials?
a. $15,000 U
b. $10,000 U
c. $10,000 F
d. $16,500 F
Click here for the SOLUTION
What is the revenue effect 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 revenue effect of the growth component?
a. $2,500 U
b. $52,500 U
c. $47,500 F
d. $50,000 F
Click here for the SOLUTION
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 revenue effect of the growth component?
a. $2,500 U
b. $52,500 U
c. $47,500 F
d. $50,000 F
Click here for the SOLUTION
Overall, was Bugos’ strategy successful in 20x4?
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
Overall, was Bugos’ strategy successful in 20x4?
a. No, because the selling price per unit decreased
b. No, because operating income decreased
c. Yes, because less direct materials were used
d. Yes, because more units were produced and sold
Click here for the SOLUTION
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
Overall, was Bugos’ strategy successful in 20x4?
a. No, because the selling price per unit decreased
b. No, because operating income decreased
c. Yes, because less direct materials were used
d. Yes, because more units were produced and sold
Click here for the SOLUTION
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