Question - Odilon Company makes a household appliance with model number X500. The goal for 2016 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 2015 to 2016. The following additional data are available for 2015 and 2016:
2015 2016
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) What is operating income for 2015?
b) What is operating income for 2016?