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

question 73

Multiple Choice

Use the information below to answer the following question(s) .Following a strategy of product differentiation, Barry Company makes an XX 300.Barry Company presents the following data for the years 1 and 2. Barry Company produces no defective units but it wants to reduce direct materials usage per unit of XX 300 in year 2.Manufacturing conversion costs in each year depend on production capacity defined in terms of XX 300 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.Barry Company has 23 customers in year 1 and 25 customers in year 2.The industry market size for high-end appliances increased 5% from year 1 to year 2.
-What is the Barry Company's net increase in operating income as a result of the growth component?

• A)$72,500 unfavourable
• B)$72,500 favourable
• C)$51,500 favourable
• D)$99,500 unfavourable
• E)$99,500 favourable

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Definitions:

Predetermined Overhead

An estimated rate used to assign overhead costs to products or services based on a planned amount of overhead and a planned allocation base.

Direct Labor

Workers who are directly involved in the manufacturing of goods or provision of services, whose labor costs are directly attributed to the product or service.

Raw Materials

Fundamental substances utilized as the starting point in the manufacturing process to create products.

Predetermined Overhead

An estimated amount of overhead cost assigned to each unit of production in advance of the actual production.