Calculate the incremental profit

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Reference no: EM1333329

Infinite Audio, Inc., manufactures car speakers which it sells to other resellers, who then customize and distribute the products to retailers which sell hi-fi auto equipment. The yearly volume of output is 300,000 pairs. The selling price and cost per unit are shown below:

Selling price $150

Costs:

Direct material $25

Direct labor 45

Variable overhead 20

Variable selling expenses 15

Fixed selling expenses 10 115

Unit profit before tax $ 35

Management is evaluating the alternative of performing the necessary customizing to allow Infinite Audio to sell its output directly to car stereo retailers for $200 per unit under an in-house marquee. Although no added investment is required in productive facilities, additional processing costs are estimated as:

Direct labor $20 per unit

Variable overhead $15 per unit

Variable selling expenses $10 per unit

Fixed selling expenses $300,000 per year

Calculate the incremental profit Infinite Audio would earn by customizing its instruments and marketing directly to end users.

Reference no: EM1333329

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