Exercise Six (2.5 points) Regis Company manufactures plugs used in its manufactu

Question

Exercise Six (2.5 points) Regis Company manufactures plugs used in its manufacturing cycle at a cost includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually has offered to sell these units to Regis at $33 per unit. If Regis decides to pur per unit of the fixed overhead will be eliminated. of $36 per unit that purchase the plugs, $2 Required: (1) If Regis chooses to purchase the plugs, how much would the company save or (2) What is the maximum amount per unit that Regis would be willing to pay to an outside supplier?

Explanation / Answer

Answer

If Regis choose to purchase plug,how much company save or loose.

Given,

   Variable cost=$(36-8)=$28,Fixed overhead=$8,Number of plugs =30,000 annally,Sale price from Orlan =$33

If the company produces 30,000 plugs ,$2 will be saved .So,(30,000*$2=60,000 cost will be saved.

If Regis purchases plugs from Orlan it will lose $3($33-$30)

So if Regis purchases from Orlan the total loss=(30,000unit*$3)=$90,000

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