Reference no: EM133076717

Question - Xyver Company makes a household appliance with model number Y200. The goal for 2022 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 Y200 units that can be produced. The industry market size for appliances increased 10% from 2021 to 2022. The following additional data are available for 2021 and 2022:

	2021	2022
Units of Y200 produced and sold	10,000	11,000
Selling price	P100	P95
Direct materials (square feet)	30,000	29,000
Direct material costs per square foot	P10	P11
Manufacturing capacity for X200 (units)	12,500	11,000
Total manufacturing conversion costs	P250,000	P220,000
Manufacturing conversion costs per unit of capacity	P20	P20

Required -

1. What is the revenue effect of the price-recovery component?

a. P50,000 F

b. P55,000 U

c. P5,000 U

d. P102,500 F

2. What is the cost effect of the price-recovery component?

a. P31,500 U

b. P33,000 U

c. P2,500 F

d. P30,500 F

3. What is the net effect on operating income as a result of the price-recovery component?

a. increased operating income due to the increased number of units produced and sold

b. increased operating income due to the revenue effect of the price-recovery component

c. decreased operating income due to decreased selling price and inability to recover increased costs

d. decreased operating income due to the inability to recover increased costs