Answer the following questions using the information below:
Merrill Company makes a household appliance with model number X800. The goal for 2012 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 X800 units that can be produced. The industry market size for appliances increased 5% from 2011 to 2012. The following additional data are available for 2011 and 2012:

-What is the cost effect of the growth component for direct materials?
A)$15,000 U
B)$10,000 U
C)$10,000 F
D)$16,500 F

Question

Answer the following questions using the information below:
Merrill Company makes a household appliance with model number X800. The goal for 2012 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 X800 units that can be produced. The industry market size for appliances increased 5% from 2011 to 2012. The following additional data are available for 2011 and 2012:
 
-What is the cost effect of the growth component for direct materials?
A)$15,000 U 
B)$10,000 U 
C)$10,000 F 
D)$16,500 F

Quizplus · Accepted Answer

The cost effect of the growth component for direct materials is $15,000 U. This is because the growth component is a percentage of the base cost, and the base cost for direct materials is $100,000 U. Therefore, the growth component is $100,000 U * 15% = $15,000 U.

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