Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows: The variable distribution costs are for transportation to the retail music stores. The current production and sales
Volume is 20,000 per year. Capacity is 25,000 units per year.
A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit. If Hobart 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 Hobart Company buys from the Memphis firm?
A) decrease of $19,000
B) increase of $19,000
C) increase of $6,000
D) increase of $13,000

Question

Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows:  The variable distribution costs are for transportation to the retail music stores. The current production and sales
Volume is 20,000 per year. Capacity is 25,000 units per year.
A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit. If Hobart 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 Hobart Company buys from the Memphis firm?
A) decrease of $19,000 
B) increase of $19,000 
C) increase of $6,000 
D) increase of $13,000

Quizplus · Accepted Answer

The Answer of Hobart Company produces speakers for PA systems. The speakers are sold to retail music stores for $30. Manufacturing and other costs are as follows:  The variable distribution costs are for transportation to the retail music stores. The current production and sales
Volume is 20,000 per year. Capacity is 25,000 units per year.
A Memphis manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $6.00 per unit. If Hobart 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 Hobart Company buys from the Memphis firm?
A) decrease of $19,000 
B) increase of $19,000 
C) increase of $6,000 
D) increase of $13,000

Hobart Company Produces Speakers for PA Systems