Mathilda Corporation manufactures a natural gas appliance, the Boiler 520B. The Corporation has designed the 520B to be different from its competitors. The Corporation presents the following data for the years 2016 and 2017:
| 2016 | 2017 | |
|---|---|---|
| Units of 520B produced and sold | 250 | 300 |
| Selling price ($) | 4000 | 4200 |
| Direct materials (square metres of aluminium) | 1250 | 1280 |
| Direct material cost per square metre ($) | 20 | 24 |
| Manufacturing processing capacity (square metres of aluminium) | 1400 | 1400 |
| Conversion cost per unit of capacity | 200 | 240 |
Answer
| 2016 | 2017 | |
| Sales (Units * Selling price) | $ 1,000,000 | $ 1,260,000 |
| Less: Direct material cost (Direct materials square metres * cost per square metre) | $ 25,000 | $ 30,720 |
| Less: conversion costs | $ 800,000 | $ 1,008,000 |
| Gross profit | $ 175,000 | $ 221,280 |
| Difference | $ 46,280 |
The strategy has been successful as the operating income increased by $ 46,280.
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