Hobart Company Produces Speakers for Home Stereo Units

Multiple Choice

Hobart Company produces speakers for home stereo units. 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 $17.00 per unit. If Hobart 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 Hobart Company buys from the Memphis firm?

A) decrease of $19,000
B) increase of $38,000
C) increase of $19,000
D) decrease of $6,000