Year 1	Year 2
Units of AP15 produced and sold	20,000	21,000
Selling price	$200	$220
Direct materials (square metres)	60,000	61,500
Direct materials costs per square metre	$20	$22
Manufacturing capacity for AP15 (units)	25,000	25,000
Total manufacturing conversion costs	$1,000,000	$1,100,000
Manufacturing conversion costs (per unit of capacity)	$40	$44
Selling and customer- service capacity (customers)	60	58
Total selling and customer-service costs	$360,000	$362,500
Cost per customer of selling and customer-service capacity	$6,000	$6,250

Luke Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in year 2. Manufacturing conversion costs in each year depend on production capacity defined in terms of AP15 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. Neither conversion costs or customer-service costs are affected by changes in actual volume. Luke Company has 46 customers in year 1 and 50 customers in year 2. The industry market size for high-end appliances increased 5% from year 1 to year 2.

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

A) $60,000 unfavourable

B) $30,000 favourable

C) $60,000 favourable

D) $200,000 favourable

E) $30,000 unfavourable

What is the Luke Company's net increase in operating income as a result of the growth component?

A) $340,000 unfavourable

B) $140,000 favourable

C) $160,000 favourable

D) $190,000 favourable

E) $250,000 unfavourable

What is the Luke Company's revenue effect of price-recovery component?

A) $400,000 favourable

B) $220,000 unfavourable

C) $400,000 unfavourable

D) $420,000 unfavourable

E) $420,000 favourable

What is the Luke Company's productivity component of change in operating income?

A) $33,000 favourable

B) $45,500 favourable

C) $33,000 unfavourable

D) $45,500 unfavourable

E) $20,500 unfavourable