Following a strategy of product differentiation, Americonic Corporation makes a high-end computer monitor. Americonic Corporation presents the following data for the years 2017 and 2018:

Somerset Corporation produces no defective units but it wants to reduce direct materials usage per unit in 2018. Manufacturing conversion costs in each year depend on production capacity defined in terms of 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. Ernsting Corporation has 100 customers in 2017 and 115 customers in 2018. The industry market size for high-end computer monitors increased 5% from 2017 to 2018.
Required:
a.What is the revenue effect of the growth component?
b.What is the cost effect of the growth component?
c.What is the net effect on operating income as a result of the growth component?

Question

Following a strategy of product differentiation, Americonic Corporation makes a high-end computer monitor. Americonic Corporation presents the following data for the years 2017 and 2018:
  
Somerset Corporation produces no defective units but it wants to reduce direct materials usage per unit in 2018. Manufacturing conversion costs in each year depend on production capacity defined in terms of 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. Ernsting Corporation has 100 customers in 2017 and 115 customers in 2018. The industry market size for high-end computer monitors increased 5% from 2017 to 2018.
Required:
a.What is the revenue effect of the growth component?
b.What is the cost effect of the growth component?
c.What is the net effect on operating income as a result of the growth component?

Quizplus · Accepted Answer

The Answer of Following a strategy of product differentiation, Americonic Corporation makes a high-end computer monitor. Americonic Corporation presents the following data for the years 2017 and 2018:
  
Somerset Corporation produces no defective units but it wants to reduce direct materials usage per unit in 2018. Manufacturing conversion costs in each year depend on production capacity defined in terms of 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. Ernsting Corporation has 100 customers in 2017 and 115 customers in 2018. The industry market size for high-end computer monitors increased 5% from 2017 to 2018.
Required:
a.What is the revenue effect of the growth component?
b.What is the cost effect of the growth component?
c.What is the net effect on operating income as a result of the growth component?

Following a Strategy of Product Differentiation, Americonic Corporation Makes a High-End