Reference no: EM132596088

Ratliff Appliances Company makes a household appliance with model number RM16. The goal for 2020 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of RM16 units that can be produced. The industry market size for appliances increased 10% from 2019 to 2020.

The following additional data are available for 2019 and 2020:

                                                                          2019                                        2020

Units Produced & Sold                               33,000                              37,950

Selling Price                                                $ 360                            $ 345

Direct Materials (square feet)                          82,500                         87,000

Direct Material Costs per square foot                $ 31                             $ 33

Manufacturing capacity (units)                      41,250                             39,850

Total Conversion Costs                              $ 866,250                                 $ 797,000

Conversion Costs per unit of capacity                $ 21                                $ 20

Question 1: Compute the flexible/variable cost effect of the price-recovery component and indicate favorable or unfavorable.