Answer the Following Questions Using the Information Below

question 96

Multiple Choice

Answer the following questions using the information below:
Following a strategy of product differentiation, Loftus Company makes a high-end Appliance, AP15. Loftus Company presents the following data for the years 2011 and 2012:
Loftus Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in 2012. 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. Loftus Company has 46 customers in 2011 and 50 customers in 2012. The industry market size for high-end appliances increased 5% from 2011 to 2012.
-What is the net effect on operating income as a result of the growth component?

• A)$60,000 U
• B)$140,000 F
• C)$60,000 F
• D)$200,000 F

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Definitions:

Sole Proprietorship

A business owned and operated by one person, where there is no legal distinction between the owner and the business entity.

Obligations

Duties or responsibilities enforced by law, contract, or moral principles.

Belong

refers to being part of, fitting in, or being rightly placed in a specific context or environment.

Specialized

Relating to a particular area of expertise or designed for a specific purpose or use.