$"$In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," sald Wim Niewindt, managing difector of Antilles Refining, NV$.,$ of Aruba. $"$At a price of $138$ florins per drum, we wauld be paying $10$ florins less than it cosis us to manufacture the drums in our own plant. Since we use $360,000$ drums a year, we would save $3,600,000$ florins on an annual basis." $($The currency in Aruba is the florin, denoted by Afl.$)$ Antulles Refining's present cost to manufacture one drum follows $($based on $360,000$ drums per year$)$:

A decision about whether to mike or buy the drums is especlally 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 woutd cost A$84\mathrm{.}860000,$ it would have a five$-$year useful life and no salvage value. The company uses straight$-$line depreciation

Alternative $2$: Purchase the drums from an oulside supplier al Afli$38$ per drum under a five year contract. manufacturer, would reduce direct labour and variable overhead costs by $30\%.$ Trect by the new equipment The new supervision cost $($All$6,660,000$ per year$)$ and direct materlals cost per dre company has no other use for the space being used to produce the drum capacity would be $6\mathrm{.}660,000$ drums per year. The com

The company's total general company owerhead would be unaffected by this