"That old equipment for producing oil drums is worn out," said Jillian Rafuse, 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 $$100,000$ per year.

Alternative $2$: Purchase oil drums from an outside supplier for $$17\mathrm{.}40$ 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 $40,000$ units per year:

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 $($ $$50,000$ per year$)$ and direct materials cost per unit would not be affected by the new

equipment. The new equipment's capacity would be $62,500$ oil drums per year.

The total general company overhead would be unaffected by this decision.

Required:

Rafuse 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 $40,000$ oil drums are needed each year.

a$.$ What will be the total relevant cost of $40,000$ subassemblies

b$.$ What would be the per unit cost of the each subassembly manufactured internally?

Note: 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?

$$ Manufacture internally

$$ Purchase from the outside supplier

O Indifferent between the two alternatives

$2.$ Rafuse 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 $50,000$ subassemblies if they are manufactured internally?

a$-2.$ What would be the per unit cost of subassembly manufactured internally?

Note: 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 $50,000$ assemblies are needed each year?

$$ Purchase from the outside supplier

$$ Indifferent between the two alternatives

$$ Manufacture internally

b$-1.$ What will be the total relevant cost of $62,500$ subassemblies if they are manufactured internally?

Total relevant cost $(62,500$ subassemblies$)$

b$-2.$ What would be the per unit cost of subassembly manufactured internally?

Note: 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 $62,500$ assemblies are needed each year?

$$ Manufacture internally

O Purchase from the outside supplier

O Indifferent between the two alternatives

$3.$ This part of the question is not part of your Connect assignment.