Miller Company produces speakers for home stereo units. The speakers are sold to
ID: 2577689 • Letter: M
Question
Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for £30. Variable costs per unit are: Direct materials £9.00; Direct labour 4.50; Distribution 1.50 and Variable Factory overhead 3.00. Fixed costs per month are: Factory overhead £120,000 and Selling and admin. 60,000. 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. An Atlanta wholesaler has proposed to place a special one-time order for 7,000 units at a special price of £25.20 per unit. The wholesaler would pay all distribution costs, but there would be additional fixed selling and administrative costs of £6,000. In addition, assume that overtime production is not possible and that allother information remains the same as the original data. The effect on profits if the special order is accepted is
Select one:
a. cannot be determined
b. £30,900 decrease
c. £50,100 increase
d. £30,900 increase
e. £50,100 decrease
Explanation / Answer
Solution:- d 30,900 increse.
Please Rate or comment if you have any doubt regarding this solution.
Particulars amount calculation Incremental revenue 176,400 7,000 * 25.2 Less incremental cost: Additional selling and administrative cost 6,000 Additional variable cost 115,500 7,000 * (9 + 4.5 + 3) Opportunity cost 24,000 2,000 * (30 - 9 - 4.5 - 1.5 - Incremental profit 30,900