Proctoring Enabled MH Lab 3. Relevant Costing 11 "In my opinion, we ought to stop making our own drums and accept that outside suppliers offer said Wim Newindt, manageg director of Antilles Retning, NV of Anube "At a price of 66 floons per druns, 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 forn, denoted by Aft) Since we use 120,000 drums a year, we would save 1.200.000 tonns on on annual besis Antiles Refining's present cost to manufacture one drum follows (based on 120.000 drums per year Direct material Direct labour Variable rat Flead overhead (Af110.00 general company merhead, Af18.20 depreciatins and, Af16.50 supervision) Total cost per drie A125.0 17.00 8.00 25.30 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 A1620 000, it would have ative year useful life and no savage value The company uses straight line depreciation Alternative 2 Purchase the drums from an outside supplier at A66 per drum under a five-year contract The new equipment would be more efficient than the equipment that Antiles Refining has been using and, according to the manufacturer, would reduce direct labour and variable overhead costs by 30% The old equipment hos no resale value Supervision cost (A1780.000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 780,000 drums per year The company has no other use for the space being used to produce the drums The company's total general company overbood would be unaffected by this decision Required: 1. Calculate the total costs and costs per drum under the two offernatives Assume that 120,000 drums are needed each year (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum Total Differential Costs-120,000 Drums Maks Buy Outside supplers price A Direct materials A3,084,000 00 N Drect labour Vanable overhead 428,000 00 672 000 00 Make Buy All Help Seve & Exit Subve Zoom Out