Use the Information Below to Answer the Following Question(s)

question 98

Multiple Choice

Use the information below to answer the following question(s) .Following a strategy of product differentiation, Luke Company makes a high-end Appliance, AP15.Luke Company presents the following data for the years 1 and 2. Luke Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in year 2.Manufacturing conversion costs in each year depend on production capacity defined in terms of AP15 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.Neither conversion costs or customer-service costs are affected by changes in actual volume.Luke Company has 46 customers in year 1 and 50 customers in year 2.The industry market size for high-end appliances increased 5% from year 1 to year 2.
-What is the Luke Company's change in operating income from year 1 to year 2?

• A)$620,000 favourable
• B)$364,500 unfavourable
• C)$364,500 favourable
• D)$200,000 favourable
• E)$200,000 unfavourable

---

Definitions:

Flexible Policy

A strategy or approach that allows for adjustments and modifications in response to changing conditions or information.

Liberal Credit Terms

Credit conditions that are lenient, offering borrowers lower interest rates or extended repayment terms.

Restrictive Policy

A policy intended to limit or regulate certain activities, often used in the context of fiscal or monetary policy to control economic variables.

Wages

Payments made by employers to employees, usually at hourly, daily, or piecework rates, for the labor or services provided.