11 01:25:52 eBook Y "In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. "At a price of 60 florins per drum, we would be paying 10 florins less than it costs us to manufacture the drums in our own plant. (The currency in Aruba is the florin, denoted by Afl.) Since we use 100,000 drums a year, we would save 1,000,000 florins on an annual basis." Antilles Refining's present cost to manufacture one drum follows (based on 100,000 drums per year): Direct material Direct labour Variable overhead Fixed overhead (Af19.60 general company overhead, Af17.20 depreciation and, Af15.50 supervision) Total cost per drum Af124.70 16.00 7.00 22.30 Af170.00 A decision about whether to make or buy the drums is especially important at this time, since the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are as follows: . Alternative 1: Purchase new equipment and continue to make the drums. The equipment would cost Afl1,350,000; it would have a six-year useful life and no salvage value. The company uses straight-line depreciation. Alternative 2: Purchase the drums from an outside supplier at Af160 per drum under a six-year contract. The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacturer, would reduce direct labour and variable overhead costs by 30%. The old equipment has no resale value. Supervision cost (Afl550,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 550,000 drums per year. The company has no other use for the space being used to produce the drums. The company's total general company overhead would be unaffected by this decision. Required: 1-a. Calculate the total costs and costs per drum under the two alternatives. Assume that 100,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum Total Differential Costs-100,000 Drums Make Make Buy Buy

tin my opinion, we ought lo stop making our own drums and accept that outside suppler's offec; said Wim Niewindt, managing director of Antiles Refining. NV. of Aruba. "Nt a paice of 60 forins per drum, we would be paying 10 forins less than it costs us to manufacture the drums in our own plant. (The curiency in Aruba is the flonlo, denoted by Af) Since we use 100.000 drums a yeaf, we would sove t,000.000 florins on an annual basis: Antiles Refining's present cost to manufacture one drum follows (based on 100,000 drums per year): A decision about whether to make or buy the drums is especially important at this time, since the equipment being used to make the drumis is completely worn out and must be replaced. The choices facing the company are as follows: - Alternatve 1: Purchase new equipment and continue to make the drums. The equipment would cost Alli:350,000; it would have a sixyear useful life and no salvage value. The company uses straight line depreclation. - Alternative 2: Purchase the drums from an outside suppiser at Al60 per drum under a six year contract. The new equipenent would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacture, would reduce direct labour and variable oveitiead costs by 30%. The old equipment has no resale value. Supervision cst (A 1550,000 per year) and direct matelals cost per dium would not be affected by the new equipinent. The new equipments capactiy would be 550,000 drums pet yeat. The company has no other use for the space being used to produce the drums The compony's total general compary ovehead would be unallected by this deckion Required: Required: 1-8, Calculate the total costs and costs per drum under the two altematives. Assume that too.000 drums are needed eachyear. (Round "Cost Per Drum" answers to 2 decimal ploces.) Expert Q\&A Done "In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," said Wim Niewindt, managing director of Antilles Refining. N.V. of Aruba. "At a price of 60 florins per drum, we would be paying 10 florins less than it costs us to manufacture the drums in our own plant. (The currency in Aruba is the florin, denoted by Afl,) Since we use 100,000 drums a year, would save 1,000,000 florins on 12.= 12 12= tin my opinion, we ought lo stop making our own drums and accept that outside suppler's offec; said Wim Niewindt, managing director of Antiles Refining. NV. of Aruba. "Nt a paice of 60 forins per drum, we would be paying 10 forins less than it costs us to manufacture the drums in our own plant. (The curiency in Aruba is the flonlo, denoted by Af) Since we use 100.000 drums a yeaf, we would sove t,000.000 florins on an annual basis: Antiles Refining's present cost to manufacture one drum follows (based on 100,000 drums per year): A decision about whether to make or buy the drums is especially important at this time, since the equipment being used to make the drumis is completely worn out and must be replaced. The choices facing the company are as follows: - Alternatve 1: Purchase new equipment and continue to make the drums. The equipment would cost Alli:350,000; it would have a sixyear useful life and no salvage value. The company uses straight line depreclation. - Alternative 2: Purchase the drums from an outside suppiser at Al60 per drum under a six year contract. The new equipenent would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacture, would reduce direct labour and variable oveitiead costs by 30%. The old equipment has no resale value. Supervision cst (A 1550,000 per year) and direct matelals cost per dium would not be affected by the new equipinent. The new equipments capactiy would be 550,000 drums pet yeat. The company has no other use for the space being used to produce the drums The compony's total general compary ovehead would be unallected by this deckion Required: Required: 1-8, Calculate the total costs and costs per drum under the two altematives. Assume that too.000 drums are needed eachyear. (Round "Cost Per Drum" answers to 2 decimal ploces.) Expert Q\&A Done "In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," said Wim Niewindt, managing director of Antilles Refining. N.V. of Aruba. "At a price of 60 florins per drum, we would be paying 10 florins less than it costs us to manufacture the drums in our own plant. (The currency in Aruba is the florin, denoted by Afl,) Since we use 100,000 drums a year, would save 1,000,000 florins on 12.= 12 12=