"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 $18 per dinm, we would be paying $5.20 less than it costs us to manufacture the drums in our own plant, Since we wse 60.000 drums a year, that would be an anmual cost savings of $312,000." Antilles Refining's current cost to manufacture one drum is given below (based on 60.000 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 zake the drums is completely worn out and must be replaced. The choices facing the company are: Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $135.800 per year. Alternative 2: Purchase the drums from an outside supplier at $18 per drum. The new equipment would be more efficient than the equipment that Antilles Refining has been using and, aceording to the manufacturer, would redice direct labor and variable overhead costs by 30%. The old equipment has no reale value, Supervision cost (\$45,000 per year) and direct materiale cout per druan would not be affected by the new equipment. The aew equipment's capacity would be 100,000 drums per year. The compary's total general company overhead would be unaffected by this decision. Required: 1. Assuming that 60,000 drums are needed each year, what is the finsncial advantage (disadvaatage) of bwing the drums from an outside supplier? 2. Assuming that 80,000 drurns are needed each year, what is the financial advantage (disadvantage) of beying the drums from an eutside supplier? 3. Asruming that 100,000 drums are needed cach year, what is the financial advantage (disadvantage) of baying the drums from an outside supplier? 4. What other factors would you recommend that the company consider before making a decisioa