Impact on Net Income due to changes in prices.
Mennekes Company manufactures the plugs used in its manufacturing cycle at a cost of $36 per unit (which includes $28 of variable manufacturing and $8 of fixed overhead). Mennekes needs 30,000 of these plugs annually. Fry's Electronics has offered to sell these units to Mennekes at $33 per unit. If Mennekes decides to purchase the plugs, $60,000 of the annual fixed overhead will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.
A. If Mennekes Company purchases the plugs but does not rent the unused facility, what is the per unit impact on the company?
B. If the plugs are purchased and the facility rented, Mennekes Company wishes to realize $100,000 in savings annually. To achieve this goal, what must be the minimum annual rent on the facility?