Meale Company makes a household appliance with model number X500. The goal for 2012 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 X500 units that can be produced. The industry market size for appliances increased 10% from 2011 to 2012. The following additional data are available for 2011 and 2012:

2011 2012

Units of X500 produced and sold 10,000 11,000

Selling price $100 $95

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

Direct material costs per square foot $10 $11

Manufacturing capacity for X500 (units) 12,500 12,000

Total conversion costs $250,000 $240,000

Conversion costs per unit of capacity $20 $20

1. Which strategy is Meale's Corporation pursuing?

		Product differentiation, because the units produced and sold increased.
		Product differentiation, because total conversion costs decreased.
		Cost leadership, because direct material costs per square foot increased.
		Cost leadership, because the selling price decreased.

2. Overall, was Meale's strategy successful in 2012?

		No, because the selling price per unit decreased.
		Yes, because operating income increased.
		Yes, because less direct materials were used.
		No, because more units were produced and sold.