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

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Definitions:

Economic Life

Economic life is the estimated period over which an asset is expected to be useful to the owner for the purpose of generating income or other economic benefits.

Internal Reports

Reports generated within an organization for the purpose of decision making by management, not for public dissemination.

Actual Impact

The real effect or consequence that an event, decision, or action has had.

Management Accountants

Professionals who specialize in providing financial data and analysis to managers within organizations, aiding in decision-making processes.