2 "In my opinion, we ought to stop making our own drums and accept that outside supplier's offer sold Wim Niewindt managing director of Antilles Refining, NV. of Aruba. "At a price of 84 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 All) Since we use 180,000 drums a year, we would save 1.800,000 florins on an annual basis. Antilles Refining's present cost to manufacture one drum follows (based on 180,000 drums per year Direct material Direct labour Variable overhead Fixed overhead (A113.60 general company overhead, A1.20 depreciation and, Afi9.50 supervision) Total cost per drum Af128.70 20.00 11.00 34.30 Af 194.00 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 A112.430,000, 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 A1184 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 (281710,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 1710,000 drums per year. The company has no other use for the space being used to produce the drams. 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 180.000 drums are needed each year. Prev 2 nr 5 !! Next > 2 The company's total general company overhead would be unaffected by this decision. Required: 1. Calculate the total costs and costs per drum under the two alternatives. Assume that 180,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) * Skipped Differential Costs Per Drum Make Buy All AN Total Differential Costs-180 000 Drums Make Huy AD An Outside supplier's price Direct materials Direct labour Variable overhead Supervision Depreciation Total cost An 000 An 000 An 0 An 0 1-b. Should the company make or buy based on analysis in part (1-a)? Make C Buy 2 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.) Skipped Differential Costs Per Drum Mahe Buy An An Total Differential Costs ---200,000 Drums Make Buy AB AL Outside supplier's price Drect materials Direct labour Variable overhend Supervision Depreciation Total cost AD 0.00 A 000 An olan 2-b. Should the company make or buy based on analysis in part (2-a)? Make Buy 2.c. Calculate the total costs and costs per drum under the two alternatives. Assume that 1710.000 cims are prinderin in 2 2.c. Calculate the total costs and costs per drum under the two alternatives. Assume that 1710,000 drums are needed each year, (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum od Make Buy Total Diferential Costs - 1.710.000 Drums Make Buy AN All An AN Outside supplier's price Direct materials Direct labour Variable overhead Supervision Depreciation Total cost AR 0.00 An 0.00 An OLAN 2-d. Should the company make or buy based on analysis in part (2-c)? O Make Buy