XYZ Company manufactures plugs at a cost of $36 per unit, which includes $8 of...
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Accounting
XYZ Company manufactures plugs at a cost of $36 per unit, which includes $8 of fixed overhead. XYZ needs 30,000 of these plugs annually (as part of a larger product it produces). ABC Company has offered to sell these units to Regis at $33 per unit. If XYZ decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.If the plugs are purchased and the facility rented, XYZ Company wishes to realize $100,000 in net savings annually.
Required:
1) What is the relevant cost to make?
2) To achieve a net savings of $100,000 annually, the minimum annual rent on the facility must be?
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