Answer the following question(s)using the information below.Day Star collected the following information:
Day Star can sell 25,000 units per year, at $80 each.The company also has an offer from a subsidiary to rent its plant facilities for $2,000,000.The fixed overhead will be incurred in each alternative, but there will be a savings of $150,000 in the fixed costs under the renting alternative.
-Based on the above information only, should Day Star make or buy the product or rent its facilities out?
A)buy
B)make
C)either make or buy - indifferent
D)rent the facilities to the subsidiary
E)either make or rent - indifferent

Question

Answer the following question(s)using the information below.Day Star collected the following information:
  Day Star can sell 25,000 units per year, at $80 each.The company also has an offer from a subsidiary to rent its plant facilities for $2,000,000.The fixed overhead will be incurred in each alternative, but there will be a savings of $150,000 in the fixed costs under the renting alternative.
-Based on the above information only, should Day Star make or buy the product or rent its facilities out?
A)buy 
B)make 
C)either make or buy - indifferent 
D)rent the facilities to the subsidiary 
E)either make or rent - indifferent

Quizplus · Accepted Answer

Based on the information provided, it appears that the best choice for Day Star would be to rent its facilities out to the subsidiary for $2,000,000. This option would allow Day Star to earn a fixed amount of revenue without incurring any variable costs associated with producing and selling its product. Additionally, the reduction in fixed costs of $150,000 under the renting alternative would further improve Day Star's profitability. Finally, the information provided suggests that Day Star's capacity is well-matched to the subsidiary's rental needs and that there may be no additional cost or resource requirements associated with renting its facilities to the subsidiary.

Answer the Following Question(s)using the Information Below