Question
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
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:
20172018
Units of XT15 produced and sold55,00058,500
Selling priceR400R440
Direct materials (square feet)150,000153,300
Direct materials costs per square footR51R55
Manufacturing capacity in units of XT1562,70062,700
Total conversion costsR6,270,000R6,708,900
Conversion costs per unit of capacityR100R107
Selling and customer-service capacity (customers)150150
Total selling and customer-service costsR2,325,000R2,426,250
Selling and customer-service capacity cost per customer R15,500R16,175
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?
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Step: 1
Understanding the Problem We need to calculate the change in operating income from 2017 to 2018 for Izzys LimitedTo do thiswell calculate the operating income for each year and then find the differenc...Get Instant Access to Expert-Tailored Solutions
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