Assuming Star Appliance can purchase 8,000 units of the part from the Roger Parts Company for $18.00 each, and the facilities currently used to make the part could be rented out to another manufacturer for $10,000 a year, what should Star Appliance do?

Question

Quizplus · Accepted Answer

If Star Appliance buys the part from Roger Parts Company, they will save $1.25 per unit, as compared to making the part themselves. 
Savings per unit = Cost of making the part - Cost of buying the part 
Savings per unit = ($18.00 + $2.50) - $20.75 = $1.25 
Additionally, if the facilities are rented out to another manufacturer for $10,000 a year, it would not make sense for Star Appliance to continue making the part themselves. Therefore, the best choice is to buy the part from Roger Parts Company.

Assuming Star Appliance Can Purchase 8,000 Units of the Part