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In my opinien, we ought to stop making our own drums and accept that eutside supplier's offer, sald Wim Niewirde, managing director of Antilies Aefining.

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In my opinien, we ought to stop making our own drums and accept that eutside supplier's offer," sald Wim Niewirde, managing director of Antilies Aefining. N.V, of Aruba. "At a price of $21 per drum, we would be paying $6.05 less than it costs us to manufacture the drums in our own plant. Since we use 70,000 drums a yeat, that would be an annual cost savings of $423,500 Annilles fiefining's A decrion about whether to make of buy the diums is especially important st this time because the equiginent being used to make the drums is complotely worn oit and must be replaced. The choices facing the company ate: Aitematwe 2. Purchase the drums from on outside supplier at sti per drum. The new equipment would be mare effeient than the equipinent that Antlies Aetring has been using and. according to the manufacturet, would reduce direct labor and variable overhead costs by 30s. The old equipment has no fesate value. Supervion cost $563000 per yoan and diect materials cost per dirum would not be affected by the new equipment. The new equipments capacioy would be 100,000 drums per year The comparys total ganetal company overtead would be unaflected by this decision. Required: outside supelier? 2. Assuming that 84,000 drums are needed each yeac, what is the finanklat advantage (disudvantage) of buying the drums from an outside supplion 3. Assuming thot 100,000 arums are nooded each yoar, what is the financial advantage (disadvantage) of buging the divems from an outside supplier? Alternative 1; Rent new equipment and continue to make the drums. The equipment would be rented ror $189,000 per year. Alternative 2: Purchase the drums from an outside supplier at $21 per drum. The new equipment would be more efficlent than the equipment that Antilles Refining has been using and, according to the manufacturer, would reduce direct labor and variable overhead costs by 30%. The old equipment has no resale value. Supervision cost. (\$53,000 per year) and direct materla's cost por drum 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 overthead would be unaffected by this decision. Required: 1. Assuming that 70,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 2. Assuming that 84,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supption? 3. Assuming that 100,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? tFor aft requtrements, enter any "disadvantages" as a negative value. Do not round intermediate calculations. Do not leave any cells blank.)

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