"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 54 florins per drum, we would be paying 10 florins less than it costs us to manufacture the drums in our own plant. (The currency in Aruba is the florin, denoted by Afl.) Since we use 80,000 drums a year, we would save 800,000 florins on an annual basis." Antilles Refining's present cost to manufacture one drum follows (based on 80,000 drums per year): 1 -02:00 Direct material Direct labour Variable overhead Fixed overhead (Af18.60 general company overhead, Af16.20 depreciation and, Af14.50 supervision) Total cost per drum Af123.70 15.00 6.00 U k 19.30 Af164.00 A decision about whether to make or buy the drums is especially 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 would cost Afl1,080,000; 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 outside supplier at Afl54 per drum under a five-year contract. The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacturer, would reduce direct labour and variable overhead costs by 30%. The old equipment has no resale value. Supervision cost (Af1360,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 360,000 drums per year. The company has no other use for the space being used to produce the drums. The company's total general company overhead would be unaffected by this decision. Required: 1-a. Calculate the total costs and costs per drum under the two alternatives. Assume that 80,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) Required: 1-a. Calculate the total costs and costs per drum under the two alternatives. Assume that 80,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) Buy Outside supplier's price Direct materials Direct labour Differential Costs Per Drum Total Differential Costs80,000 Drums Make Make Buy Afl 54.00 Afl 4,320,000 Afi 23.70 Afl 1,896,000 10.50 840,000 6.00 480,000 4.50 360,000 6.20 496,000 Afl 50.90 Afi 54 00 Afl 4,072,000 AFI 4,320,000 Variable overhead Supervision + Depreciation Total cost 1-b. Should the company make or buy based on analysis in part (1-a)? O Make O Buy 2-a. Calculate the total costs and costs per drum under the two alternatives. Assume that 100,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum 1:19 Total Differential Costs-100,000 Drums Make Buy Make Buy Outside supplier's price Af Afi Direct materials Afl 23.70 Afl Direct labour 10.50 Variable overhead Supervision Depreciation Total cost Afl 34.20 Afi 0.00 Afi 0 Afl 0 2-b. Should the company make or buy based on analysis in part (2-a)? O Make O Buy 2-c. Calculate the total costs and costs per drum under the two alternatives. Assume that 360,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum Total Differential Costs360,000 Drums Make Buy Make Buy Outside supplier's price Direct materials Afl Afl Afl Afl Direct labour Variable overhead Supervision Depreciation Total cost Afi 0.00 Afl 0.00 Afi 0 Afi 0 2-d. Should the company make or buy based on analysis in part (2-c)? O Make O Buy 3. This part of the question is not part of your Connect assignment