Ratliff Appliances Company makes a household appliance with model number RM16. The goal for 2020 is to
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Ratliff Appliances Company makes a household appliance with model number RM16. The goal for 2020 is to reduce direct materials used per unit. No defective units are currently produced. Manufacturing conversion costs depend on the 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 |
The industry market size for appliances increased 10% from 2019 to 2020. How much of Ratliff Co’s change in income from 2019 to 2020 is due to just the industry market size factor?
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Authors: Srikant M. Datar, Madhav V. Rajan, Louis Beaubien
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