Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit that includes $8 of fixed overhead.
Regis needs 30,000 of these plugs annually, and Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead applied will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.
(1) If Regis purchases the plugs but does not rent the unused facility, how much would the company save or lose per unit? __________
(2) If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in savings annually. To achieve this goal, what must the minimum annual rent on the facility be? ______
(1) If Regis purchases the plugs but does not rent the unused facility, how much would the company save or lose per unit?
The new plugs will cost $33 per unit.
The expert examines what is the best opion, weather to buy the plugs and rent the facility, or buy the plugs and not rent.