Packaging & More, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the XSX drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.8 hours of welding time, annual production is limited to 2,500 drums. At present, the welding machine is used exclusively to make the XSX drums. The accounting department has provided the following financial data based on producing 2,500 xsx drums/year: XSX Drums $154.00 Selling price per drum Cost per drum: Direct materials Direct labour ($18 per hour) Manufacturing overhead Selling and administrative expense Margin per drum $44.50 4.50 3.15 15.40 67.55 $ 86.45 Management believes 3,000 XSX drums could be sold each year, if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has looked into the possibility of buying additional drums from an outside supplier. Metal Products, Inc., a supplier of quality products, would be able to provide the additional 500 XSX type drums per year at a price of $120 per drum, which Storage Systems would resell to its customers at its normal selling price after appropriate relabelling. Manufacturing overhead is allocated to products on the basis of direct labour-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.05 per XSX drum. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier. Manufacturing overhead is allocated to products on the basis of direct labour-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.05 per XSX drum. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier. Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $0.85 per XSX drum. The variable selling and administrative expenses of $0.85 per drum would be incurred when drums acquired from the outside supplier are sold to the company's customers. Required : ( assume Direct Materials and Direct Labour are true variable costs.) 1) Compute the contribution margin per unit and contribution margin ratios for: a) the XSX drums if purchased from an outside supplier b) the XSX drums if manufactured by Storage Systems 2) Calculate the company's Net Operating Income based on the following 3 scenarios: a) 500 XSX drums are purchased from an outside supplier and Packaging & More manufactures 2,500 XSX drums in house b) The 3,000 XSX drums are manufactured solely by Packaging & More and a used welding machine is purchased for $1,000 but will only last 1 year which gives the company ample capacity to make the additional 500 drums plus an additional 500 drums, if needed. c) A foreign distributor has agreed to purchase 500 XSX drums for $125 per drum from the company. We currently do not sell in the country that the foreign distributor is selling to so there is no effect on current customer sales. Packaging & More would have to pay additional duties/shipping costs of $1.70 per drum and a licensing fee of $9,000 per year. With the purchase of the used welding machine in 2b), we would be able to manufacture 3,500 XSX drums ourselves. 3) What is your recommendation based on scenarios from the 2nd requirement that you would make to the CEO of Packaging & More, Inc., Ms. Kaur? Do this analysis using either a Business Report or Memorandum with supporting calculations but also include a cover letter stating Assignment Name; Company Name; Group member names; Date of the report