Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.
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An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of $25.20 per unit.The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $6,000.In addition, assume that overtime production is not possible and that all other information remains the same as the original data.What is the effect on profits if the special order is accepted?
A) increase of $54,900
B) increase of $30,900
C) increase of $36,900
D) increase of $176,400

Question

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows:  The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year.
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An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of $25.20 per unit.The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of $6,000.In addition, assume that overtime production is not possible and that all other information remains the same as the original data.What is the effect on profits if the special order is accepted?
A) increase of $54,900 
B) increase of $30,900 
C) increase of $36,900 
D) increase of $176,400

Quizplus · Accepted Answer

The effect on profits is calculated by considering the additional revenue from the special order minus the additional fixed costs. Revenue from the order is 7,000 units * $25.20 = $176,400. Subtract the additional fixed costs of $6,000, resulting in an increase in profits of $170,400 - $6,000 = $30,900.

Miller Company Produces Speakers for Home Stereo Units