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Following a strategy of product differentiation, Strike Company makes a high-end golf club called Smack. Strike Company presents the following data for the years 1 and 2. Year 1 Year 2 Units of Smack produced and sold 20,000 21,200 Selling price $210 $225 Direct materials (square metres) 55,000 60,000 Direct materials costs per square metre $18 $24 Manufacturing capacity for Smack (units) 24,000 25,000 Total manufacturing conversion costs $768,000 $850,000 Manufacturing conversion costs (per unit of capacity) $32 $34 Selling and customer service capacity (customers) 80 70 Total selling and customerservice costs $436,000 $378,000 Cost per customer of selling and customerservice capacity $5,450 $5,400 Strike Company produces no defective units but it wants to reduce direct materials usage per unit of Smack in year 2. Manufacturing conversion costs in each year depend on production capacity defined in terms of Smack units that can be produced. Selling and customerservice costs depend on the number of customers that the customer and service functions are designed to support. Neither conversion costs or customerservice costs are affected by changes in actual volume. Strike Company has 46 customers in year 1 and 50 customers in year 2. The industry market size for high-end golf clubs increased 5% from year 1 to year 2. What is the Strike Company's cost effect of growth component?

A. $59,400 favourable B. $60,000 unfavourable C. $30,000 favourable D. $59,400 unfavourable E. $60,000 favourable

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