Question

I please need assistance with questions 6-7-8-9 of this question. I previously asked but another case was answered under my question

Following a strategy of product differentiation, Positive Charge Ltd. makes high quality electronic components. Positive Charge Ltd. presents the following data for the past two years relating to its AA01 product. Year 1 Year 2 Units of AA01 produced and sold 4,000 4,320 Selling price $800 $850 Direct materials (kilograms) 10,400 12,360 Direct materials costs per kilogram $60 $64 Manufacturing capacity for AA01 (units) 15,000 15,000 Conversion costs $1,350,000 $1,440,000 Conversion costs per unit of capacity $90 $96 Selling and customer-service capacity (customers) 80 78 Total selling and customer-service costs $760,000 $780,000 Selling and customer-service capacity cost per customer $9,500 $10,000 Positive Charge produces no defective units but it wants to reduce direct materials usage per unit in Year 2. Manufacturing conversion costs in each year depend on production capacity defined in terms of 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. Neither conversion costs nor customerservice costs are affected by changes in actual volume. Positive Charge has 60 customers in Year 1 and 66 customers in Year 2. The industry market size for the product increased 6% from Year 1 to Year 2. Of the $50 increase in unit selling price, $30 is attributable to a general price increase. Required: 6) What amount is the revenue effect of the price-recovery component? 7) What amount is the cost effect of the price-recovery component? 8) What is the net effect on operating income as a result of the price-recovery component? 9) What is the net effect on operating income as a result of the productivity component? (10

Urgent

Questions 1 - 5 I have had assistance on questions 1 - 5. I just need assistance with 6 - 9

Answer 1

6) What amount is the revenue effect of the price-recovery component?

Revenue Effect of Price Recovery = (Selling Price in year 2 – Selling Price in year 1)* Actual output sold in year 2

= (850-800)*4320

=$216,000 F

7) What amount is the cost effect of the price-recovery component?

Cost effect of price recovery for variable cost

=

(Input price in year 2

-

Input price in year 1)

*

Units of input required to produce year 2 output in year 1

Direct materials Units require to produce year 2 outputs in year 1

= (Input in year 1/output in year 1)*output in year 2

= (10,400/4,000)*4,320= 11,232 Units

Direct Materials= (64-60)*11,232

= $ 44,928 U

Cost effect of price recovery for Fixed cost

=

(Price per unit of capacity in Year 2

-

Price per unit of capacity in Year 1)

*

Actual units of capacity in year 1 because adequate capacity exists to produce year 2 output in year 1

Conversion Cost = (96-90)*15,000

=$90,000 U

Selling and customer-service cost = (10,000 -9,500)* 80

= $40,000U

Direct Material Cost	$44,928 U
Conversion cost	$90,000 U
Selling and customer-service cost	$40,000 U
Cost effect of price- recovery	$174,928 U

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

Revenue effect of price recovery	$216,000 F
Cost effect of price recovery	$174,928 U
Change in operating income due to price-recovery	$41,072 F

*Operating income is increased as a result of the price-recovery components

9) What is the net effect on operating income as a result of the productivity component?

Productivity Component

Cost effect of productivity for variable costs

=

(Actual units of input used to produce year 2 output

-

Units of Input require to produce year 2 output in year 1)

*

Input price in year 2

Direct Material = (12,360 – 11,232)*64 = $72,192 U

Cost effect of productivity for Fixed costs

=

(Actual units of Capacity in year 2

-

Actual units of capacity in year 1 because adequate capacity exists to produce year 2 output in year 1)

*

Price per unit of capacity in year 2

Conversion cost= (15,000-15,000)*96 = 0

Selling and customer-service capacity = (78-80)*10,000 = 20,000 F

Productivity component of cost changes

Direct Material	$72,192 U
Conversion Cost	0
Selling and customer-service capacity	$20,000 F
Change in operating income due to	$52,192 U

*Productivity component decrease the net operating income