Figure 9-3
Miller Company Produces Speakers for Home Stereo Units

Figure 9-3
Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for £30. Manufacturing and other costs are as follows: $\begin{array}{lllr}\text { Variable costs per unit: } && {\text { Fixed costs per month: }} \\\text { Direct materials } & £ 9.00 & \text { Factory overhead } & £ 120,000 \\\text { Direct labour } & 4.50 & \text { Selling and admin. } & 60,000 \\\text { Factory overhead } & 3.00 & \text { Total } & \underline{E 180,000} \\\text { Distribution } &1.50 & & \\\text { Total } &£18.00 & &\end{array}$ 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.
-Refer to Figure 9-3. A Tennessee manufacturing firm has offered a one-year contract to supply speaker parts at a cost of £6.00 per unit. If Miller Company accepts the offer, it will be able to reduce variable costs by 30 per cent and rent unused space to an outside firm for £18,000 per year. All other information remains the same as the original data. What is the effect on profits if Miller Company buys from the Tennessee firm?

A) decrease of £19,000
B) increase of £19,000
C) increase of £13,000
D) decrease of £6,000