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

question 101

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 price-recovery component?

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

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Definitions:

Placebo Treatment

A treatment or procedure that is given as a control in clinical trials, having no therapeutic effect and used to assess the effectiveness of another substance or treatment.

Projective Testing

A type of psychological test in which subjects respond to ambiguous stimuli, revealing hidden emotions and internal conflicts based on their projections.

Brain Scanning

The use of imaging technology, such as MRI or CT scans, to examine the structure or function of the brain.

Interrater Reliability

The degree of agreement among raters or observers, assessing how consistently they score or evaluate a given item or behavior.