Regis Company manufactures plugs at a cost of $32 per unit, which includes $7 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 $30 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:

Multiple Choice

• Save $3.00 per unit.

• Lose $6.00 per unit.

• Save $2.00 per unit.

• Lose $3.00 per unit.

• Save $1.00 per unit.