Answer the Following Questions Using the Information Below:
Mitsufugi Company

Answer the following questions using the information below:
Mitsufugi Company makes a kitchen appliance with model number KA450.The goal for 2018 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 KA450 units that can be produced.The industry market size for appliances increased 5% from 2017 to 2018.The following additional data are available for 2017 and 2018:
$$\begin{array} { l r r } & 2017 & 2018 \\\text { Units of KA450 produced and sold } & 10000 & 10300 \\\text { Selling price } & \$ 150 & \$ 145 \\\text { Direct materials (square metres) } & 30000 & 29000 \\\text { Direct material costs per square metres } & \$ 12 & \$ 13 \\\text { Manufacturing capacity for KA450 (units) } & 12500 & 12000 \\\text { Total manufacturing conversion costs } & \$ 250000 & \$ 240000 \\\text { Manufacturing conversion costs per unit of capacity } & \$ 20 & \$ 20\end{array}$$
-What is the net effect on operating profit as a result of the price-recovery component?

A) Decreased operating profit due to decreased selling price and inability to recover increased costs.
B) Increased operating profit due to the increased number of units produced and sold.
C) Decreased operating profit due to the inability to recover increased costs.
D) Increased operating profit due to the revenue effect of the price-recovery component.

Correct Answer:

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