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Majestic Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows: The
Majestic Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows: The current production and sales volume is 20,000 per year. A Georgia manufacturing firm has offered a one-year contract to supply a primary speaker component at a cost of $5.20 per unit. If Majestic accepts the offer, variable costs (other than the distribution costs, which will still be incurred) drop by 30 percent. Majestic will be able to rent the 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 Majestic buys the component from the Georgia firm
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