Answer the following questions using the information below:
Following a strategy of product differentiation, Arseniq Company makes a high-end Appliance, XT15. Arseniq presents the following data for the years 2014 and 2015:
$\begin{array}{lrr}&2014&2015\
\text { Units of XT15 produced and sold } & 50,000 & 52,500 \
\text { Selling price } & \$ 500 & \$ 550 \
\text { Direct materials (square feet) } & 150,000 & 153,750 \
\text { Direct materials costs per square foot } & \$ 50 & \$ 55 \
\text { Manufacturing capacity in units of XT15 } & 62,500 & 62,500\
\text { Total conversion costs } & \$ 6,250,000 & \$ 6,875,000 \
\text { Conversion costs per unit of capacity } & \$ 100 & \$ 110 \
\text { Selling and customer-service capacity (customers) } & 150 & 150 \
\text { Total selling and customer-service costs } & \$ 2,250,000 & \$ 2,343,750 \
\text { Selling and customer-service capacity cost per customer } & \$ 15,000 & \$ 15,625
\end{array}$ Arseniq 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. Arseniq had 140 customers in 2014 and 145 customers in 2015.
-What is the cost effect of the growth component?

Question

Answer the following questions using the information below:
Following a strategy of product differentiation, Arseniq Company makes a high-end Appliance, XT15. Arseniq presents the following data for the years 2014 and 2015:
 $\begin{array}{lrr}&2014&2015\
\text { Units of XT15 produced and sold } & 50,000 & 52,500 \
\text { Selling price } & \$ 500 & \$ 550 \
\text { Direct materials (square feet) } & 150,000 & 153,750 \
\text { Direct materials costs per square foot } & \$ 50 & \$ 55 \
\text { Manufacturing capacity in units of XT15 } & 62,500 & 62,500\
\text { Total conversion costs } & \$ 6,250,000 & \$ 6,875,000 \
\text { Conversion costs per unit of capacity } & \$ 100 & \$ 110 \
\text { Selling and customer-service capacity (customers) } & 150 & 150 \
\text { Total selling and customer-service costs } & \$ 2,250,000 & \$ 2,343,750 \
\text { Selling and customer-service capacity cost per customer } & \$ 15,000 & \$ 15,625
\end{array}$ Arseniq 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. Arseniq had 140 customers in 2014 and 145 customers in 2015.
-What is the cost effect of the growth component?

Quizplus · Accepted Answer

The growth component is the increase in costs due to the increase in units produced and sold. The increase in units produced and sold is 2,500 units (52,500 - 50,000). The cost effect of the growth component is the increase in total costs due to the increase in units produced and sold. The increase in total costs is the sum of the increase in direct materials costs, the increase in manufacturing conversion costs, and the increase in selling and customer-service costs. The increase in direct materials costs is $375,000 (2,500 units * $55 per square foot * 150 square feet per unit - 2,500 units * $50 per square foot * 150 square feet per unit). The increase in manufacturing conversion costs is $625,000 (2,500 units * $110 per unit - 2,500 units * $100 per unit). The increase in selling and customer-service costs is $93,750 (145 customers * $15,625 per customer - 140 customers * $15,000 per customer). The total cost effect of the growth component is $1,093,750 ($375,000 + $625,000 + $93,750).

Answer the Following Questions Using the Information Below: Following a Strategy

Answer the Following Questions Using the Information Below:
Following a Strategy