Answer the following questions using the information below:
Following a strategy of product differentiation, Arseniq Company makes a high-end Appliance, XT15. Arseniq presents the following data for the years 2014 and 2015:
Arseniq produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Arseniq had 140 customers in 2014 and 145 customers in 2015.
	2014	2015
Units of XT 15 produced and sold	50000	52500
Selling price	500	550
direct materials (square feet)	150000	153750
Direct materials costs per square foot	50	55
manufacturing capacity in units of XT15	62500	62500
total conversion costs	250000	6875000
conversion costs per unit of capacity	100	110
selling and custome service capacity (customers)	150	150
total selling and customer service costs	2250000	2343750
selling and customer-service capacity cost per customer	15000	15625
What is the net effect on operating income as a result of the productivity component?
a) 875,000 Favorable
b) 875,000 Unfavorable
c) 206,250 Unfavorable
d) 206,250 Favorable