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

question 133

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 net increase in operating income as a result of the growth component?

• A) $340,000 unfavourable
• B) $140,000 favourable
• C) $160,000 favourable
• D) $190,000 favourable
• E) $250,000 unfavourable

---

Definitions:

Labor Union

An organization of workers formed to protect and advance their rights and interests.

Monopoly Power

The ability of a firm to influence or control the price and production of a good or service due to the lack of viable competition.

Major League Baseball

A professional baseball organization consisting of teams that play in the American League and the National League.

United Auto Workers

A labor union in the United States representing workers in the automotive industry as well as other sectors.