Xyver Company makes a household appliance with model number Y200. The goal for 2022 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 Y200 units that can be produced. The industry market size for appliances increased 10% from 2021 to 2022. The following additional data are available for 2021 and 2022:

2021 2022

Units of Y200 produced and sold 10,000 11,000

Selling price P100 P95

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

Direct material costs per square foot P10 P11

Manufacturing capacity for X200 (units) 12,500 11,000

Total manufacturing conversion costs P250,000 P220,000

Manufacturing conversion costs per unit of capacity P20 P20

1. What is the revenue effect of the price-recovery component?

a. P50,000 F

b. P55,000 U

c. P5,000 U

d. P102,500 F

2. What is the cost effect of the price-recovery component?

a. P31,500 U

b. P33,000 U

c. P2,500 F

d. P30,500 F

3. What is the net effect on operating income as a result of the price-recovery component?

a. increased operating income due to the increased number of units produced and sold

b. increased operating income due to the revenue effect of the price-recovery component

c. decreased operating income due to decreased selling price and inability to recover increased costs

d. decreased operating income due to the inability to recover increased costs