Reference no: EM132819279

ABC Company manufactures plugs used in its manufacturing cycle at a cost of Php45 per unit that includes Php10 of fixed overhead. ABC needs 37,500 of these plugs annually, and XYZ Company has offered to sell these units to ABC at Php42 per unit. If ABC decided to purchase the plugs, Php75,000 of the annual fixed overhead will be eliminated, and the company may be able to rent the facility previously used manufacturing the plugs.

Problem 1: If Gutdamn Company purchases the plugs but does not rent the unused facility, the company would

a. Lose Php3.00 per unit
b. Save Php3.00 per unit
c. Lose Php5.00 per unit
d. Save Php5.00 per unit

Problem 2: If the plugs are purchased and the facility rented, ABC Company wishes to realize Php125,000 in savings annually. To achieve this goal, the minimum annual rent on facility must be

a. Php112,500
b. Php187,500
c. Php150,000
d. Php312,500