Question
Murtha Corporation plans to grow by offering a sound system, the SS3000, that is superior and...
Murtha Corporation plans to grow by offering a sound system, the SS3000, that is superior and unique from the competition. Murtha believes that putting additional resources into R&D (research and development) and staying ahead of the competition with technological innovations is critical to implementing its strategy. Out of the two basic strategies, Murtha's strategy is
a) product leadership
b) cost leadership
c) product differentiation
d) downsizing
Bustamante Company makes a garden edge-trimmer. The goal for 2020 is to reduce direct materials usage per unit. No defective units are produced. Manufacturing conversion costs depend on production capacity defined in terms of garden edge-trimmers that can be produced. The following additional data are available for 2019 and 2020:
| 2019 | 2020 | |
| Units of garden edge-trimmer produced and sold | 10,000 | 11,000 |
| Selling price | $98 | $102 |
| Direct materials (square feet) | 30,000 | 29,000 |
| Direct material costs per square foot | $10 | $11 |
| Manufacturing capacity for garden edge-trimmers (units) | 12,500 | 11,000 |
| Total manufacturing conversion costs | $250,000 | $242,000 |
| Manufacturing conversion costs per unit of capacity | $20 | $22 |
What is the difference in operating income between 2019 and 2020?
a) $139,000 Unfavorable
b) $131,000 Favorable
c) $139,000 Favorable
d) $142,000 Favorable
Merrill Company makes a household appliance with model number X800. The goal for 2020 is to reduce direct materials usage per unit. No defective units are produced. Manufacturing conversion costs depend on production capacity defined in terms of X800 units that can be produced. The following additional data are available for 2019 and 2020:
| 2019 | 2020 | |
| Units of X800 produced and sold | 10,000 | 10,500 |
| Selling price | $100 | $96 |
| Direct materials (square feet) | 30,000 | 29,000 |
| Direct material costs per square foot | $10 | $10.50 |
| Manufacturing capacity for X800s (units) | 12,500 | 11,500 |
| Total manufacturing conversion costs | $250,000 | $218,500 |
| Manufacturing conversion costs per unit of capacity | $20 | $19 |
What is the revenue effect of the growth component of change in operating income, 2019 to 2020?
a) $48,000 Favorable
b) $50,000 Favorable
c) $20,000 Favorable
d) $120,000 Unfavorable
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