(CMA, adapted) PROBLEM 12-28 Make or Buy Decisions LD1- "In my opinion, we ought to stop making our own drums and nccept that outside suppliers offer," said Wim Niewindt, managing director of Antilles Refining Ny of Aruba. "At a price of $18 per drum, we would be paying $5.20 less than it costs us to manufacture the drums in our own plant. Since we use 60.000 drums a year, that would be an annual cost savings of $312,000,- Antilles Refining's current cost to manufacture one drum is given below (based on 60,000 drums per year): $10.35 6.10 1.60 Direct materials Direct labor Variable overhead Fond overhead (52 30 general company overhead, 51.60 depreciation and, 30.75 Uprision) Total cost per drum 522220 A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced The choice thing the company are Alternative Rent new equipment and continue to make the drums. The equipment would be rented for $135,00 per year Arena 2 Purchase the drums from an outside supplier at 518 per drum. The new equipment would be more efficient than the equipment that Antilles Refining has been using and according to the manufacturer, would reduce direct labor and variable overhead Co by 30%. The old equipment has no resale value. Supervision cost ($45,000 per year) and direct materials cost per dram would not be affected by the new equipment. The new equipment's capacity would be 100.000 drums per year The company's total general company overhead would be affected by this decision 616 Chapter 13 Reguir 1. Auming that 60,000 drums are needed each year, what is the financial advantage (disadvan tage) of buying the drums from an outside supplier 2. Asuming that 80,000 drums are needed each year, what is the financial advantage (disadvan e) or buying the drums from an outside supplier Amin 100.000 drums are needed each year, what is the financial advantage (dad vantage of buying the drums from an outside supplier? When the factors woulori recommend is the many other before molt