Following a strategy of product differentiation, Strike Company makes a high-end golf club called Smack. Strike Company presents the following data for the years 1 and 2.

Following a strategy of product differentiation, Strike Company makes a high-end golf club called Smack. Strike Company presents the following data for the years 1 and 2.

	Year 1	Year 2
Units of Smack produced and sold	20,000	21,200
Selling price	$210	$225
Direct materials (square metres)	55,000	60,000
Direct materials costs per square metre	$18	$24
Manufacturing capacity for Smack (units)	24,000	25,000
Total manufacturing conversion costs	$768,000	$850,000
Manufacturing conversion costs (per unit of capacity)	$32	$34
Selling and customer service capacity (customers)	80	70
Total selling and customerservice costs	$436,000	$378,000
Cost per customer of selling and customerservice capacity	$5,450	$5,400

Strike Company produces no defective units but it wants to reduce direct materials usage per unit of Smack in year 2. Manufacturing conversion costs in each year depend on production capacity defined in terms of Smack units that can be produced. Selling and

customerservice

costs depend on the number of customers that the customer and service functions are designed to support. Neither conversion costs or

customerservice

costs are affected by changes in actual volume. Strike Company has 46 customers in year 1 and 50 customers in year 2. The industry market size for high-end golf clubs increased 5% from year 1 to year 2.

What is the Strike Company's cost effect of growth component?

A.

$59,400 unfavourable

B.

$60,000 unfavourable

C.

$59,400 favourable

D.

$30,000 favourable

E.

$60,000 favourable

Strike Company produces no defective units but it wants to reduce direct materials usage per unit of Smack in year 2. Manufacturing conversion costs in each year depend on production capacity defined in terms of Smack units that can be produced. Selling and

customerservice

costs depend on the number of customers that the customer and service functions are designed to support. Neither conversion costs or

customerservice

costs are affected by changes in actual volume. Strike Company has 46 customers in year 1 and 50 customers in year 2. The industry market size for high-end golf clubs increased 5% from year 1 to year 2.

What is the Strike Company's cost effect of growth component?