Question
Trusted Products Company makes a household appliance with model number L800. The goal for 2018 is to reduce direct materials usage per unit. No defective
Trusted Products Company makes a household appliance with model number L800. The goal for 2018 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 L800 units that can be produced. The industry market size for appliances increased 2% from 2017 to 2018. The following additional data are available for 2017 and 2018:
2017 2018
Units of L800 produced and sold 31,000 31,620
Selling price $310 $290
Direct materials (square feet) 98,000 96,500
Direct material costs per square foot $34 $36
Manufacturing capacity for L800 (units) 38,750 37,350
Total conversion costs $1,162,500 $1,120,500
Conversion costs per unit of capacity $30 $30
Overall, was Trusted Products's strategy successful in 2018?
A) Yes, because total revenues increased
B) No, because operating income decreased
C) No, because direct materials usage per unit increased
D) No, because direct material cost per unit decreased
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