Following a strategy of product differentiation,Izzy's Limited Company makes a high-end Appliance,XT15.Izzy's Limited presents the following data for the years 2017 and 2018:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15.Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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.Izzy's Limited had 135 customers in 2017 and 140 customers in 2018.
What is the change in operating income from 2017 to 2018?

Question

Following a strategy of product differentiation,Izzy's Limited Company makes a high-end Appliance,XT15.Izzy's Limited presents the following data for the years 2017 and 2018:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15.Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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.Izzy's Limited had 135 customers in 2017 and 140 customers in 2018.
What is the change in operating income from 2017 to 2018?

Quizplus · Accepted Answer

2017
Total costs = [($51 × 150,000)+ ($100 × 62,700)+ ($15,500 × 150)] = $16,245,000
Operating income = ($400 × 55,000)- $16,245,000 = $5,755,000
2018
Total costs = [($55 × 153,300)+ ($107 × 62,700)+ ($16,175 × 150)] = $17,566,650
Operating income = ($440 × 58,500)- $17,566,650 = $8,173,350
Change in operating income =$5,755,000 - $8,173,350 = $2,418,350 F

Following a Strategy of Product Differentiation,Izzy's Limited Company Makes a High-End