Answer the Following Questions Using the Information Below:
Following a Strategy

question 36

Multiple Choice

Answer the following questions using the information below:
Following a strategy of product differentiation, Arseniq Company makes a high-end Appliance, XT15. Arseniq presents the following data for the years 2014 and 2015:
$\begin{array}{lrr}&2014&2015\\\text { Units of XT15 produced and sold } & 50,000 & 52,500 \\\text { Selling price } & \$ 500 & \$ 550 \\\text { Direct materials (square feet) } & 150,000 & 153,750 \\\text { Direct materials costs per square foot } & \$ 50 & \$ 55 \\\text { Manufacturing capacity in units of XT15 } & 62,500 & 62,500\\\text { Total conversion costs } & \$ 6,250,000 & \$ 6,875,000 \\\text { Conversion costs per unit of capacity } & \$ 100 & \$ 110 \\\text { Selling and customer-service capacity (customers) } & 150 & 150 \\\text { Total selling and customer-service costs } & \$ 2,250,000 & \$ 2,343,750 \\\text { Selling and customer-service capacity cost per customer } & \$ 15,000 & \$ 15,625\end{array}$ Arseniq produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Arseniq had 140 customers in 2014 and 145 customers in 2015.
-What is operating income in 2015?

• A) $11,440,000
• B) $11,200,000
• C) $9,000,000
• D) $9,207,000

---

Definitions:

Ongoing, Persistent

Continuing to exist or occur over a prolonged period without interruption.

Alzheimer's Disease

Disease of the brain parenchyma that causes a gradual and progressive decline in cognitive functioning.

Community-Based Nurse

A nurse who provides health care and support to individuals in their own communities, outside traditional hospital settings, focusing on prevention and primary care.

Extended Care Facility

Institution devoted to providing medical, nursing, or custodial care for an individual over a prolonged period such as during the course of a chronic disease or the rehabilitation phase after an acute illness.