Regis Company Manufactures Plugs at a Cost of $36 Per

question 109

Multiple Choice

Regis Company manufactures plugs at a cost of $36 per unit, which includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually (as part of a larger product it produces) . 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 cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.
If Regis Company purchases the plugs but does not rent the unused facility, the company would:

• A) Save $3.00 per unit.
• B) Lose $6.00 per unit.
• C) Save $2.00 per unit.
• D) Lose $3.00 per unit.
• E) Save $1.00 per unit.

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Definitions:

Accounts Receivable

Funds that customers owe to a business for products or services provided but not yet compensated for.

Liquidity

A measure of how easily assets can be converted into cash without significant loss in value.

Deposits in Transit

Funds that have been received and recorded by a business but not yet recorded by the bank, leading to a discrepancy in the accounting records until the deposit clears.

Currency

A system of money in general use in a particular country.