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i need the answer to that question please In my opinion, we ought to stop making our own drums and accept that outside supplier's offer.,
i need the answer to that question please
"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 $22 per drum, we would be paying $3.50 less than it costs us to mantifacture the drums in our own plant. Since we use 95,000 drums a year, that would be an annual cost savings of $332.500. Antilles Refining's current cost to manufacture one drum is given below (based on 95,000 drums per year) 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 woin out and must be replaced. The choices facing the company ares Alternative t: Rent new equipment and continue to make the drums. The equipment would be rented for $285.000 per yeat Alternative 2: Purchase the drums from an outside supplier at $22 per drum. The new equipment would be more efficient than the equipment that Antilles Refining has been using and, accarding to the manufacturer, would reduce direct labot and variable overhead costs by 20%. The old equipment has no resale value. 5 upervision cost (\$95,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capactly would be 125,000 drums per year. The company's total general company overhead would be unaffected by this decision (Round all intermediate calculations to 2 ) decimal placess, Required: 1. Assuming that 95,000 drums are needed each year, what is the financial advantoge (disactivantage) of buying the drums from an outside supplier? 2. Assuming that 100.000 drums are needed each year, what is the financial advantoge (disadvantage) of buying the drums from an outside supplier? 3. Assuming that 125,000 drums are needed each yeat, what is the finanial advantage (disadvantage) of buying the drums from an outside supplier? Alternative 1: Kent new equipment and continue to make the drums. I he equipment would be rented for $285,000 per year. Alternative 2: Purchase the drums from an outside supplier at $22 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 costs by 20%. The old equipment has no resale value. Supervision cost ( $95,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 125,000 drums per year. The company's total general company overhead would be unaffected by this decision. (Round all intermediate calculations to 2 . decimal places.) Required: 1. Assuming that 95,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 2. Assuming that 100,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 3. Assuming that 125,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from at outside supplier? (For all requirements, enter any "disadvantages" as a negative value. Do not round intermediate calculations.) Step by Step Solution
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