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

question 80

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 cost effect of growth component?

• A) $60,000 unfavourable
• B) $30,000 favourable
• C) $60,000 favourable
• D) $200,000 favourable
• E) $30,000 unfavourable

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Definitions:

Bond Prices

The market price for which a bond is bought or sold, influenced by interest rates, credit quality, and other factors.

Interest Rate Movements

Fluctuations in the interest rate over time which can affect borrowing costs and investment returns.

Stock and Bond Markets

Financial markets where shares of publicly held companies are issued and traded, and where debt securities are bought and sold.

Rates of Return

A measure of the profit or loss of an investment over a specified period, usually expressed as a percentage of the initial investment.