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 140 customers in 2017 and 145 customers in 2018.
What is operating income in 2018?
A) $7,463,500
B) $15,841,900
C) $9,212,000
D) $15,921,775

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 140 customers in 2017 and 145 customers in 2018.
What is operating income in 2018?
A) $7,463,500 
B) $15,841,900 
C) $9,212,000 
D) $15,921,775

Quizplus · Accepted Answer

Total costs = [($57 × 161,750) + ($109 × 62,900) + ($15,975 × 150)] = $18,472,100
Operating income = ($570 × 60,200) - $18,472,100 = $15,841,900

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