What is operating income for 2014?
Meale Company makes a household appliance with model number X500. The goal for 2015 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 X500 units that can be produced. The industry market size for appliances increased 10% from 2014 to 2015. The following additional data are available for 2014 and 2015:
2014 2015
Units of X500 produced and sold 10,000 11,000
Selling price $100 $95
Direct materials (square feet) 30,000 29,000
Direct material costs per square foot $10 $11
Manufacturing capacity for X500 (units) 12,500 12,000
Total conversion costs $250,000 $240,000
Conversion costs per unit of capacity $20 $20
A) $450,000
B) $1,000,000
C) $750,000
D) $700,000
Answer: A
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