Answer the Following Questions Using the Information Below

question 28

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 price-recovery component?

• A)$179,000 F
• B)$179,000 U
• C)$241,000 U
• D)$420,000 F

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Definitions:

Face Value

The nominal or original value of a security or financial instrument as stated by its issuer, often the amount to be repaid at maturity.

Realizable Value

The estimated amount that an entity can receive from the disposal of an asset, after deducting the costs associated with the disposal.

Maturity Value

Maturity value is the amount to be received by an investor at the maturity date of a financial instrument, often including principal and interest.

Allowance Method

A bookkeeping approach involving the estimation of non-recoverable debts by anticipating uncollectible accounts at the close of every period.