Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: $\begin{array}{lrlr}
\text { Variable costs per unit: } & & \text { Fixed costs per month: } \
\text { Direct materials } & \$ 9.00 & \text { Factory overhead } & \$ 120,000 \
\text { Direct labour } & 4.50 & \text { Selling and admin. } & \underline{60,000} \
\text { Factory overhead } & 3.00 & \text { Total } & \$ 180,000 \
\text { Distribution } & 1.50 & & \
\text { Total } & \$ 18.00 & &
\end{array}$
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.
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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 percent 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?

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: $\begin{array}{lrlr}
\text { Variable costs per unit: } & & \text { Fixed costs per month: } \
\text { Direct materials } & \$ 9.00 & \text { Factory overhead } & \$ 120,000 \
\text { Direct labour } & 4.50 & \text { Selling and admin. } & \underline{60,000} \
\text { Factory overhead } & 3.00 & \text { Total } & \$ 180,000 \
\text { Distribution } & 1.50 & & \
\text { Total } & \$ 18.00 & &
\end{array}$
 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.
-
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 percent 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?

Quizplus · Accepted Answer

The Answer of Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: $\begin{array}{lrlr}
\text { Variable costs per unit: } & & \text { Fixed costs per month: } \
\text { Direct materials } & \$ 9.00 & \text { Factory overhead } & \$ 120,000 \
\text { Direct labour } & 4.50 & \text { Selling and admin. } & \underline{60,000} \
\text { Factory overhead } & 3.00 & \text { Total } & \$ 180,000 \
\text { Distribution } & 1.50 & & \
\text { Total } & \$ 18.00 & &
\end{array}$
 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.
-
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 percent 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?

Miller Company Produces Speakers for Home Stereo Units The Variable Distribution Costs Are for Transportation to the Retail