Answer:
Trusted Products Company
Was Trusted Products Company's strategy successful in 2019?
B) No, because operating income decreased
Explanation:
a) Trusted Products Company's Income Statements for 2018 and 2019:
2018 2019
Sales $9,610,000 $9,169,800
Direct Materials costs (3,332,000) (3,474,000)
Conversion Costs (1,162,500) (1,120,500)
Operating net income $5,115,500 $4,575,300
b) Sales:
2018 = 31,000 x $310 = $9,610,000
2019 = 31,620 x $290 = $9,169,800
c) Direct Materials Costs:
2018 = 98,000 x $34 = $3,332,000
2019 = 96,500 x $36 = $3,474,000
d) Conversion Costs:
2018 = $1,162,500; per capacity unit = $1,162,500/38,750 = $30
2019 = $1,120,500; per capacity unit = $1,120,500/37,350 = $30
e) Goal for 2019: Reduce direct materials usage per unit.
Direct materials usage per unit:
2018 = 98,000/31,000 = 3.16 square feet
2019 = 96,500/31,620 = 3.05 square feet
f) The goal of a reduction in direct materials usage per unit was achieved, as 2019's usage reduced to 3.05 square feet as against 2018's 3.16 square feet. However, this did not translate to success because of the reduced selling price and the increased cost of direct materials. These resulted in reduced net operating income from $5,115,500 in 2018 to $4,575,300 in 2019.
