The Dubs Division of Fast Company (the parent company) produces wheels for off-road sport vehicles. Dubs has two products, 1 and 2. The two products only differ in how they are marketed. Product 1 is sold in bulk to customizing shops, while Product 2 is sold directly to consumers. Dub's estimated operating data for the year follows. Product 1: Sales ... $300,000; Var Mfg ... $160,000; Var G&A ... $40,000; CM ... $100,000; Fixed Mfg ... $24,000; Fixed G&A ... $36,000; Op. Profits ... $40,000; Unit Sales ... 1,000. Product 2: Sales ... $400,000; Var Mfg ... $160,000; Var G&A ... $60,000; CM ... $180,000; Fixed Mfg ... $32,000; Fixed G&A ... $48,000; Op. Profits ... $100,000; Unit Sales ... 1,000. Unless otherwise stated assume the fixed costs given above are allocated costs and unavoidable. To simplify this example, assume Dubs is operating at its capacity of 2,000 units and it is producing and selling 1,000 units each of P1 and P2. A supplier has offered to sell Dubs sets of wheel nuts for $35 per set. The accounting records for Dubs assigns the following costs to the manufacture of a wheel nut set: Direct Materials $12.00; Direct Labor $8.00; Mfg OH $15.00. Fixed manufacturing costs traceable to the wheel nuts amount to $12,000 per year in total and relate to machinery that could be sold to another company. Buying the wheel nuts from the supplier would allow Dubs to manufacture and sell an additional 400 units of P1 (wheel nut sets would have to be purchased for these units as well). What is the total increase in profits Dubs would earn by accepting the suppliers offer? If it would result in a loss to buy from the supplier express your answer as a negative number such as -2000.

The Dubs Division of Fast Company (the parent company) produces wheels for off-road sport vehicles. Dubs has two products, 1 and 2. The two products only differ in how they are marketed. Product 1 is sold in bulk to customizing shops, while Product 2 is sold directly to consumers.

Dub's estimated operating data for the year follows.

Product 1:

Sales ... $300,000;

Var Mfg ... $160,000;

Var G&A ... $40,000;

CM ... $100,000;

Fixed Mfg ... $24,000;

Fixed G&A ... $36,000;

Op. Profits ... $40,000;

Unit Sales ... 1,000.

Product 2:

Sales ... $400,000;

Var Mfg ... $160,000;

Var G&A ... $60,000;

CM ... $180,000;

Fixed Mfg ... $32,000;

Fixed G&A ... $48,000;

Op. Profits ... $100,000;

Unit Sales ... 1,000.

Unless otherwise stated assume the fixed costs given above are allocated costs and unavoidable.

To simplify this example, assume Dubs is operating at its capacity of 2,000 units and it is producing and selling 1,000 units each of P1 and P2. As a result of increased foreign competition Dubs expects to have to cut the unit price of P1 by 25% to maintain its sales volume. The accounting records for Dubs indicate that none of the fixed manufacturing overhead or fixed General and Administrative costs are specifically traceable to the manufacture and sale of P1. Rather than cut the price of P1, what would be the total company profit if Dubs only produces 1,000 units of P2? If the total profits result in a loss you should express your answer as a negative number such as -2000.

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