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chapter 13-18 quiz solutions

# chapter 13-18 quiz solutions - Answer the following...

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Answer the following questions using the information below: Following a strategy of product differentiation, Loftus Company makes a high-end Appliance, AP15. Loftus Company presents the following data for the years 2011 and 2012: 2011 2012 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 \$1,100,000 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 Loftus Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in 2012. 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. Loftus Company has 46 customers in 2011 and 50 customers in 2012. The industry market size for high-end appliances increased 5% from 2011 to 2012. 1. What is operating income for 2011? A) \$364,500 B) \$1,804,500 C) \$1,440,000 D) \$200,000 Answer: C Explanation: C) (\$200 × 20,000) - [(\$20 × 60,000) + (\$40 × 25,000) + (\$6,000 × 60)] = \$1,440,000 2) What is operating income in 2012? \$1,804,500

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3) What is the change in operating income from 2011 to 2012? \$1,440,000 (\$220 × 21,000) - [(\$22 × 61,500) + (\$44 × 25,000) + (\$6,250 × 58)] = \$1,804,500 \$1,440,000 - \$1,804,500 = \$364,500 F 4) What is the revenue effect of the growth component? 5) What is the cost effect of the growth component? A) \$60,000 U B) \$140,000 F C) \$60,000 F D) \$200,000 F Answer: A Explanation: A) [(63,000 - 60,000) × \$20] + [(25,000 - 25,000) × \$40] + [(60 - 60) × \$6,000] = \$60,000 U
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