Miller Company produces speakers for home stereo units. The speakers are sold to retail stores...
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Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows: Variable costs per unit: Fixed costs per month: Direct materials $ 9.00 Factory overhead $120,000 Direct labor 4.50 Selling and admin. 60,000 Factory overhead 3.00 Total $180,000 Distribution 1.50 Total $18.00 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 speakers at a cost of $17.00 per unit. If Miller Company accepts the offer, it will be able to 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 $6,000 b. increase of $9,000 c. decrease of $8,000 d. increase of $8,000
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