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 10% from 2017 to 2018. The following additional data are available for 2017 and 2018:

What is the cost effect of the growth component for direct materials?

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 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 10% from 2017 to 2018. The following additional data are available for 2017 and 2018:

What is the cost effect of the growth component for direct materials?

Quizplus · Accepted Answer

Units of input required to produce 2017 output in 2018 = 94,000 × 37,400/34,000 = 103,400
Cost effect of the growth component for direct materials
= (103,400 - 94,000) × $31 = $291,400 U

Trusted Products Company Makes a Household Appliance with Model Number