Miller Company Produces Speakers for Home Stereo Units

Multiple Choice

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: 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 speaker parts at a cost of $6.00 per unit.If Miller 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 Miller Company buys from the Tennessee firm?

A) decrease of $19,000
B) increase of $19,000
C) increase of $13,000
D) increase of $6,000