"That old equipment for producing oil drums is worn out," said 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 oil drums internally or whether it should discontinue production and purchase them from an outside supplier. The alternatives follow: Alternative 1: Rent new equipment for producing the oil drums for $144,000 per year. Alternative 2: Purchase oil drums from an outside supplier for $19.65 each. Hondrich Company's costs per unit of producing the oil drums internally (with the old equipment) are given below. These costs are based on a current activity level of 30,000 units per year: Direct materials Direct labour Variable overhead Fixed overhead ($2.40 supervision, $1.90 depreciation, and $5.00 general company overhead) Total cost per unit $ 6.00 11.00 1.20 9.30 $27.50 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 ($72,000 per year) and direct materials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 60,000 oil drums 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 30,000 oil drums are needed each year. a. What will be the total relevant cost of 30,000 subassemblies if they are manufactured internally as compared to being purchased? Total relevant cost (30,000 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.) Per unit cost of subassembly c. Which course of action would you recommend to the president? O Manufacture internally O Purchase from the outside supplier O 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. a-1. What will be the total relevant cost of 48,000 subassemblies if they are manufactured internally? Total relevant cost (48.000 subassemblies) a-2. What would be the per unit cost of subassembly manufactured internally? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Per unit cost of subassembly a-3. Which course of action would you recommend if 48,000 assemblies are needed each year? O Purchase from the outside supplier Manufacture internally O Indifferent between the two alternatives b-1. What will be the total relevant cost of 60,000 subassemblies if they are manufactured internally? Total relevant cost (60,000 subassemblies) b-2. What would be the per unit cost of subassembly manufactured internally? (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 60,000 assemblies are needed each year? Manufacture internally O Purchase from the outside supplier Indifferent between the two alternatives Moore Company manufactures and sells a single product called a Lop. Operating at capacity, the company can produce and sell 30,000 Lops per year. Costs associated with this level of production and sales are given below: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $15 $ 450,000 8 240,000 3 90,000 9 270,000 4 120,000 6 180,000 $ 45 $1,350,000 The Lops normally sell for $50 each. Fixed manufacturing overhead is constant at $270,000 per year within the range of 25,000 through 30,000 Lops per year. Required: 1. Assume that due to a recession, Moore Company expects to sell only 25,000 Lops through regular channels next year. A large retail chain has offered to purchase 5,000 Lops if Moore is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order, so variable selling expenses would be slashed by 75%. However, Moore Company would have to purchase a special machine to engrave the retail chain's name on the 5,000 units. This machine would cost $10,000. Moore Company has no assurance that the retail chain will purchase additional units in the future. Calculate the net increase/decrease in profits next year if this special order is accepted. in profits 2. Refer to the original data. Assume again that Moore Company expects to sell only 25,000 Lops through regular channels next year. The provincial government would like to make a one-time-only purchase of 5,000 Lops. The government would pay a fixed fee of $1.80 per Lop, and it would reimburse Moore Company for all costs of production (variable and fixed) associated with the units. Since the government would pick up the Lops with its own trucks, there would be no variable selling expenses associated with this order. If Moore Company accepts the order, by how much will profits increase or decrease for the year? in profits 3. Assume the same situation as that described in (2) above, except that the company expects to sell 30,000 Lops through regular channels next year, so accepting the government's order would require giving up regular sales of 5,000 Lops. If the government's order is accepted, by how much will profits increase or decrease from what they would be if the 5,000 Lops were sold through regular channels? in profits