"That old equipment for producing carburetors is worn out," sald Bill Seebach, president of Hondrich Company. "We need to make a decision quickly" The company is trying to decide whether it should rent new equipment and continue to make its carburetors internally or whether it should discontinue production of its carburetors and purchase them from an outside supplier. The alternatives follow Alternative 1. Rent new equipment for producing the carburetors for $140.000 per year Alternative 2 Purchase carburetors from an outside supplier for $19.35 each Hondrich Company's costs per unit of producing the carburetors Internally (with the old equipment) are given below. These costs are based on a current activity level of 35,000 units per year, Direct materials Direct labour Variable overhead Fixed overhead ($2.00 supervision, $1.8e depreciation, and 54.00 general company overhead) $ 5.40 10.ee 1.60 7.80 Total cost per unit $24.BD The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and variable overhead costs by 25%. Supervision cost ($70,000 per year and direct finaterials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 50,000 carburetors per year The total general company overhead would be unaffected by this decision Required: 1. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. Assume that 35,000 carburetors are needed each year, a. What will be the total relevant cost of 35,000 subassemblies if they are manufactured internally as compared to being purchased? Total rolevant cost (35,000 subassemblies) b. What would be the per unit cost of the each subassembly manufactured internally? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Por unit cost of subassembly c. Which course of action would you recommend to the president? O Purchase from the outside supplier Manufacture Internally Indifferent between the two alternatives 2. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. 3-1. What will be the total relevant cost of 40,000 subassemblies if they are manufactured internally? Total relevant cost (40,000 subaszombles) a-2. What would be the per unit cost of subassembly (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Por unit cost of subassembly a-3. Which course of action would you recommend if 40,000 assemblies are needed each year? Indifferent between the two alternatives Purchase from the outside supplier O Manufacture Internally b-1. What will be the total relevant cost of 50,000 subassemblies if they are manufactured internally? Total relevant cost (50,000 subassemblies) b-2. What would be the per unit cost of subassembly? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Per unit cost of subassembly b-3. Which course of action would you recommend if 50,000 assemblies are needed each year? Purchase from the outside supplier Indifferent between the two alternatives O Manufacture Internally 3. Not available in Connect "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. Ny of Aruba. "At a price of $20 per drum, we would be paying $4.45 less than it costs us to manufacture 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 (based on 65,000 drums per year) Cost per Drum $10.95 7.00 1.60 Direct materials Direct labour Variable overhead Fixed overhead ($2.58 general company overhead, $1.60 depreciation, and, 50.88 supervision) 4.98 Total cost per drum $24.45 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 must be replaced. The choices facing the company are Alternative trent new equipment and continue to make the drums. The equipment would be rented for $156,000 per year. Alternative 2. Purchase the drums from an outside supplier at $20 per drum 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 25%. The old equipment has no resale value. Supervision cost ($52,000 per year and direct materials cost per drum would 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 unaffected by this decision (Round all intermediate calculations to 2 decimal places.) Required: 1. To assist the managing director in making a decision, prepare an analysis showing the total cost and the cost per drum for each of the two alternatives given above. Assume that 65,000 drums are needed each year, 3. What will be the total relevant cost of 65,000 drums if they are manufactured internally as compared to being purchased? Answer is complete and correct. Total relevant cost (65,000 drums) $ 1,339,000 b. What would be the per unit cost of each drum manufactured internally? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Per unit cost of $ 39,000.00 drum c. Which course of action would you recommend to the managing director? Purchase from the outside supplier Manufacture internally Indifferent between the two alternatives 2a-1 What will be the total relevant cost of 80,000 drums if they are manufactured internally? Answer is complete and correct. Total relevant cost (80,000 drums) 1,600,000 2a-2. What would be the per unit cost of drums? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Per unit cost of $ 0.00 drum 2a-3. What course of action would you recommend if 80,000 drums are needed each year? Indifferent between the two alternatives Manufacture internally Purchase from the outside supplier 2b-1. What will be the total relevant cost of 100,000 drums if they are manufactured internally? Answer is complete and correct. Total relevant cost (100,000 drums) $ 1,948,000 26-2. What would be the per unit cost of drums? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Per unit cost of $ drum (52,000.00)