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"That old equipment for producing oll diums is wom out," said Bil Seebach, president of Hondrich Company, "We need to make a decision quickly: The company is trying to decide whether it should rent new equipment and continue fo make its oit drums internally or whether it should discontinue production and purchase them from an outside supplier. The alternatives follow: Alteinative 1 Rent new equipment for producing the oll drums for $147000 per yeat Alternative 2: Purchase olli drums from an outside suppler for $18.80 each. Hondrich Company's costs per unit of producing the oll drums intemally (with the old equipment) are given below. These costs are based on a current activity level of 30,000 units per year: The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and variable overhead costs by 25%. Supervision cost ( $73.500 per year) and direct materlals cost per unit would not be affected by the new equipment. The new equipment's capacity would be 50.000 oil drums per year. The total general company overhead would be unaffected by this decision. Requirect: 1. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the tw. alternatlves given above. Assume that 30,000 oil drums are needed each year. a. What will be the total relevant cost of 30,000 subassemblies if they are manufactured intemally as compared to being purchased? Requirect 1. Seobach is unsule what the company should do and would like an analysis showing the unit costs and fotal costs for each of the fwo alternatives given above. Assume that 30.000 oll drums are needed each year. a. What will be the tolal relevant cost of 30.000 subassemblies if they are manufactured intemally as compared to being purchased? b. What would be the per unit cost of the each subassembly manufactured intemally? (Do not round Intermediate caleulations. Round your onswer to 2 decimal places.) c. Which course of action would you recommend to the president? Indifferent between the two alternatives Manufacture internally Purchase from the outside suppller 2. Seebach is unsure what the company should do and would like an analysis showing the unit conts and total costs for each of the two altermatives given above. a.1. What will be the total relevant cost of 42,000 subossemblies if they are manufactured internally? o.2. What would be the per unit cost of subassembly manufactured internally? (Do not round intermediate calculations. Round your answer to 2 docimal ploces.) a.3. Which course of action would you recommend if 42.000 assemblies are needed each year? Indifferent between the two altematives Purchase from the outside supplier Manufacture internally b-1. What will be the total relevant cost of 50,000 subassemblies if they are manufactured internally? b.2. What would be the per unit cost of subassembly manufactured internally? (Do not round intermediate caleulations, Hound your answer to 2 decimol places.) b-3. Which course of action would you recommend if 50.000 assembles are needed each year? Purchase from the outside supplier Manufacture internally Indifferent between the two atternatives 3. This part of the question is not part of your Connect assignment
