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

question 117

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 the net effect on operating income as a result of the growth component?

• A) $1,118,750 F
• B) $875,000 F
• C) $875,000 U
• D) $1,118,750 U

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Definitions:

Mineral Pigments

Natural colorants derived from minerals, used historically in painting and decoration for their vivid colors and durability.

Plant Dyes

Natural dyes derived from plants, used for coloring fabrics, foods, and other materials, often with traditional techniques.

Insect And Fish Dyes

Natural dyes derived from insects, such as cochineal for red color, or fish, used historically for textile dyeing and in art materials.

Printmakers

Artists specialized in creating artworks through the process of printmaking, including techniques like etching, engraving, lithography, and screen printing.