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In my opinion, we ought to stop making our own drums and accept that outside supplier's offer, said Wim Niewindt, managing director of Amilles. Refining.

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"In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," said Wim Niewindt, managing director of Amilles. Refining. NV4 of Aruba. "At a price of $20 per drum, we would be paying $4.45 less than it costs us to manufocture the drums in our own plant, Since we use 65,000 drums a year, that would be an annual cost savings of $289,250," Antilles Refining's current cost to manufacture one drum is given below (bosed on 65,000 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 worn out and mutt be replaced. The choices facing the company are Alternative 1: Rent new equipment and continue to make the drums. The equipment would be cented for $156,000 per year. Altemative 2. Purchase the drums from an outside supplier at $20 per drum. The new equipment would be more efficient than the equlpment that Antilles Refining has been using and, according to the manufocturer, would reduce diect laboe and variable overhead costs by 25%. The old equipment has no rosale value. Supervision cost (\$52,000 per year) and direct materials cost per drum wouid 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 unatfected by this decision. Required: 1. Assuming that 65,000 druns are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 2. Assuming that 00,000 drums are needed each yoar, what is the financial advantage (disadvamage) of buying the drums from an outside supplier? 3. Aswuming that 100,000 drums are needed each year, what is the financial advantage (disadvanago) of buying the drums from an outside supplier? (For all requirements, enter any "disadvantages" as a negative value. Do not round intermediate calculations. Do not ieave any cells blank.)

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