The variable distribution costs are for transportation to

Reference no: EM13593161

Jackson 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
Direct Materials $9.00
Direct Labor $4.50
- Factory overhead $3.00
Distribution $1.50
Total $18.00

Fixed Costs per month
Factory overhead $120,000
Selling and admin $60,000
Total $180,000

The variable distribution costs are for transportation to the retail stores. The current production and sales volume is 20,000 per year, which is 80% of capacity.

A Tennessee manufacturing firm has offered a one-year contract to supply a primary speaker component at a cost of $5.25 per unit. If Jackson accepts the offer, variable costs (other than the distribution costs) drop by 30 percent. Jackson will be able to rent the unused space to an outside firm for $35,000 per year. All other information remains the same as the original data. What is the effect on profits if Jackson buys from the Tennessee firm?

Reference no: EM13593161

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