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

question 95

Essay

Use the information below to answer the following question(s).
Following a strategy of product differentiation,Instruments Inc.makes a hand held calculator,II400.Instruments Inc.presents the following data for the years 1 and 2:
Instruments Inc.produces no defective units but it wants to reduce direct materials usage per unit of II400 in year 2.Manufacturing conversion costs in each year depend on production capacity defined in terms of II400 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.Instruments Inc.has 23 customers in year 1 and 25 customers in year 2.The industry market size for hand held calculators increased 5% from year 1 to year 2.Of the $4 increase in unit selling price,$1 is due to a general increase in prices.
-Required:
a.What amount is the revenue effect of the price-recovery component?
b.What amount is the cost effect of the price-recovery component?
c.What is the net change in operating income as a result of the price-recovery component?

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Definitions:

Reaction

A process in which substances, the reactants, are converted into different substances, the products, involving rearrangement of atomic or molecular structures.

Gilman Reagent

Organometallic compounds of the form R2CuLi, utilized in organic chemistry for carbon-carbon bond formation reactions.

3-Methylpentane

An organic compound that is a branched alkane with six carbon atoms, where the methyl group is attached to the third carbon.

Reaction

A process in which substances, called reactants, transform into different substances, called products.