A manager is trying to decide whether to rent a piece of equ

A manager is trying to decide whether to rent a piece of equipment or buy the piece of equipment. To rent the piece of equipment, the costs would involve a flat fee of $40,000 as well as $4 per unit produced on the machine. If the manager was to buy the equipment outright, the cost would be $100,000. After what production level (in units) would buying the equipment be more economical than renting the equipment?

Solution

Emount with production level to rent the piece of equipment = $40,000/$4 = $10,000

production level of buying the equipment = $100,000/$10,000 = $10 per unit