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 160 customers in 2017 and 165 customers in 2018.
What is the net effect on operating income as a result of the price-recovery component? (Round any intermediary calculations to two decimals and your final answer to the nearest dollar.)
Definitions:
Top Talent
Top talent refers to the most highly skilled and capable individuals within a particular field or industry.
Labor Costs
The total sum of all compensation, benefits, and taxes paid to employees by an employer for their work.
Union Contracts
Agreements between labor unions and employers that outline wages, benefits, working conditions, and other employment terms.
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