Meale Company makes a household appliance with model number X500. The goal for 2015 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 X500 units that can be produced. The industry market size for appliances increased 10% from 2014 to 2015. The following additional data are available for 2014 and 2015:
$\begin{array}{lrr}&2014&2015\
\text { Units of } X 500 \text { produced and sold } & 10,000 & 11,000 \
\text { Selling price } & \$ 100 & \$ 95 \
\text { Direct materials (square feet) } & 30,000 & 29,000 \
\text { Direct material costs per square foot } & \$ 10 & \$ 11\\text { Manufacturing capacity for } X 500 \text { (units) } & 12,500 & 12,000 \
\text { Total conversion costs } & \$ 250,000 & \$ 240,000 \
\text { Conversion costs per unit of capacity } & \$ 20 & \$ 20
\end{array}$
-What is operating income for 2014?

Question

Meale Company makes a household appliance with model number X500. The goal for 2015 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 X500 units that can be produced. The industry market size for appliances increased 10% from 2014 to 2015. The following additional data are available for 2014 and 2015:
 $\begin{array}{lrr}&2014&2015\
\text { Units of } X 500 \text { produced and sold } & 10,000 & 11,000 \
\text { Selling price } & \$ 100 & \$ 95 \
\text { Direct materials (square feet) } & 30,000 & 29,000 \
\text { Direct material costs per square foot } & \$ 10 & \$ 11\\text { Manufacturing capacity for } X 500 \text { (units) } & 12,500 & 12,000 \
\text { Total conversion costs } & \$ 250,000 & \$ 240,000 \
\text { Conversion costs per unit of capacity } & \$ 20 & \$ 20
\end{array}$
-What is operating income for 2014?

Quizplus · Accepted Answer

Operating income = Sales revenue - Cost of goods sold - Operating expensesSales revenue = Units sold * Selling price = 10,000 * $100 = $1,000,000Cost of goods sold = Direct materials cost + Direct labor cost + Manufacturing overhead costDirect materials cost = Direct materials used * Direct material cost per square foot = 30,000 * $10 = $300,000Direct labor cost = 0 (given)Manufacturing overhead cost = Total conversion costs = $250,000Cost of goods sold = $300,000 + $0 + $250,000 = $550,000Operating expenses = 0 (not given)Operating income = $1,000,000 - $550,000 - $0 = $450,000

Meale Company Makes a Household Appliance with Model Number X500