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.
-What production level is required for Day Star to be indifferent between making or buying the part if $260,000 of fixed costs can be eliminated by buying?
A)32,500 units
B)26,500 units
C)12,500 units
D)1,000 units
E)0 units

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.
-What production level is required for Day Star to be indifferent between making or buying the part if $260,000 of fixed costs can be eliminated by buying?
A)32,500 units 
B)26,500 units 
C)12,500 units 
D)1,000 units 
E)0 units

Quizplus · Accepted Answer

To find the indifference point, we need to calculate the production level where the cost of making equals the cost of buying. Given that $260,000 of fixed costs can be eliminated by buying, we set up the equation: Fixed Costs - Eliminated Fixed Costs = Variable Cost per Unit * Quantity. Solving for Quantity gives us 32,500 units.

Answer the Following Question(s)using the Information Below