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 180 customers in 2017 and 185 customers in 2018.
What is the revenue effect of the price-recovery component?
A) $3,132,000 U
B) $1,320,000 U
C) $1,320,000 F
D) $3,132,000 F

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 180 customers in 2017 and 185 customers in 2018.
What is the revenue effect of the price-recovery component?
A) $3,132,000 U 
B) $1,320,000 U 
C) $1,320,000 F 
D) $3,132,000 F

Quizplus · Accepted Answer

Revenue effect of the price-recovery component = ($660 - $600) × 52,200 = $3,132,000 F

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