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Buy the plugs and rent the facility, or buy the plugs and not rent

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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.

Required:

(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? ______

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Solution Summary

The expert examines what is the best opion, weather to buy the plugs and rent the facility, or buy the plugs and not rent.

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(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 ...

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