The Miller Company manufactures wiring tools. The company is currently producing well below its full capacity. The Brisbois Company has approached Miller with an offer to buy 5,000 tools at $17.50 each. Miller sells its tools wholesale for $18.50 each; the average cost per unit is $18.30, or which $2.70 is fixed costs.
a. If Miller were to accept Brisbois's offer, what would be the increase in Miller's operating profits?
b. Assume that Miller is operating at full capacity. If Miller were to accept Brisbois's offer, what would be the change in Miller's operating profits?