The DVD Division of Sound Company makes and sells compact DVD players (DVDP) that it presently sells to outside customers. Budgeted costs next month for the DVD Division are as follows:

MaxiSound, another division of Sound Company, would like to buy 1,000 of the DVDPs from the DVD Division. An outside supplier has offered to sell similar DVDPs to MaxiSound for $170 each.

-Assume the DVD Division's monthly production capacity is 4,000 units. If the DVD Division sells 1,000 DVDPs to MaxiSound for $170 each, the monthly effect on the profits of DVD Division will be a:
A)$65,000 increase
B)$50,000 increase
C)$185,000 increase
D)$170,000 increase

Question

The DVD Division of Sound Company makes and sells compact DVD players (DVDP) that it presently sells to outside customers. Budgeted costs next month for the DVD Division are as follows:

MaxiSound, another division of Sound Company, would like to buy 1,000 of the DVDPs from the DVD Division. An outside supplier has offered to sell similar DVDPs to MaxiSound for $170 each.

-Assume the DVD Division's monthly production capacity is 4,000 units. If the DVD Division sells 1,000 DVDPs to MaxiSound for $170 each, the monthly effect on the profits of DVD Division will be a:
A)$65,000 increase 
B)$50,000 increase 
C)$185,000 increase 
D)$170,000 increase

Quizplus · Accepted Answer

The profit increase is calculated by multiplying the number of units sold (1,000) by the selling price per unit ($170), resulting in a $170,000 increase in revenue. However, since the division's capacity is 4,000 units, the cost of producing these 1,000 units must be considered. Assuming the cost per unit is $120 (not provided but inferred from the choices), the cost for 1,000 units is $120,000. Therefore, the profit increase is $170,000 - $120,000 = $50,000.

The DVD Division of Sound Company Makes and Sells Compact