14:00 "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 78 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 160,000 drums a year, we would save 1,600,000 florins on an annual basis." Antilles Refining's present cost to manufacture one drum follows (based on 160.000 drums per year): Direct material Direct labour Variable overhead Fixed overhead (Af112.60 general company overhead, Af110.20 depreciation and, Af18.50 supervision). Total cost per drum Af127.70 19.00 10.00 31.30 AF168.00 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 Af12,160,000, it would have a five-year useful life and no salvage value. The company uses straight-line depreciation. Alternative 2: Purchase the drums from an outside supplier at Af178 per drum under a five-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 (Af1,360,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's 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 160,000 drums are needed each year (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum Total Differential Costs-160,000 Drums Make Buy Make Buy Outside supplier's price Al 178.00 All 28,480,000 Direct materials Direct labour AB 27.70 A 4,432,000 13.30 2,128,000 Variable overhead 7.00 1,120,000 Supervision 8.50 1,360,000 Depreciation 13.50 2.160.000 Afl 70,00 Af 178.00 AS 11.200.000 A 28,480,000 Total cost 1-b. Should the company make or buy based on analysis in part (1-a)? Make: 100% O Buy Collapse 01:12:22 Save & Exit 2-0. Calculate the total costs and costs per drum under the two alternatives. Assume that 200,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum Total Differential Costs-290,000 Drums Make Buy Make Buy Outside supplier's price A 178.00) AB 35,600,000 eBook Direct materials Direct labour All 27.70 Afl 5,540.000 13.30 2.660.000 Variable overhead Supervision Depreciation 7.00 1,400.000 6.80 1,360.000 13.50 2.700.000 Total cost Af 68 30 Al 178.00 A 13.660.000 A 35.600,000 2-b. Should the company make or buy based on analysis in part (2-a)? Make Collapse 2-c. Calculate the total costs and costs per drum under the two alternatives. Assume that 1,360,000 drums are needed each year (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum Total Differential Costs-1,300,000 Drums 01214 Make Buy Make Outside supplier's price A 178.00 A Buy 242.000.000 Direct materials All 27.70 A 3.767.200 eBook Direct labour 13.30 16,088,000 Variable overhead 7.00 9.520,000 Supervision 1.00 1.360.000 Depreciation 1.58 2,148,800 AB 50.58 A 178.00 AB 34,684,000 An 242.080,000 Total cost 2-d. Should the company make or buy based on analysis in part (2-c)