"That old equipment for producing oll drums is worn out," said Jillan Rafuse, president of Hondrich Compary. $"$We need to make a

decision quickly." The company is trying to decide whether it should rent new equipment and continue to make its ail drums intemally

or whether it should discontinue production and purchase them from an outside supplier. The alternatives follow:

Alternative $1$: Rent new equipment for peoducing the oil drums for $$147,000$ per year.

Alternative $2$: Purchase oil drums from an outside supplier for $$19\mathrm{.}80$ each

Hondrich Company's costs per urit 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$-$

The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and varlable

overhead costs by $25\%.$ Supervision cost per year$)$ and direct materials cost per unit would not be affected by the new

equipment. The new equipment's capacity would be $50,000$ ail drums per year.

The tatal 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 abowe. Assume that $30,000$ oll 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?

Tuad ralevant cock $(30,000$ subassuimbles$)$ $$706,500$

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

Note: Do not round intermed late calculations. Pound your answer to $2$ decimal places.

Fer uni. cost $$ subassumbly

c$.$ Which course of action would you recommend to the president?

Indifferent between the two alternatiwes

Purchase from the autside supler

Manufacture internaly

Aafuse is unsure what the company should do and would lloe an analysis showing the unit costs and tatal costs for each of the two

alternatives given above.

a$-1.$ What will be the total relevant cost of $42,000$ subassemblies if they are manufactured internaly?

Total relevamt cost $(42,000$ subassulmbles$)$ $$884,100$

Total relevam cose $(42,000$ subasoumbles$),$$$884,100$

a$\mathrm{.}2.$ What would be the per unit cost of subassembly manufactured intemally?

Note: Do not round intermediate calculations. $$ound your answer to $2$ decimal places.

Per uni. cost $$ subasoumbly $,$$$25\mathrm{.}47$

a$\mathrm{.}3.$ Which course of action would you recommend if $42,000$ assemblies are needed each year?

Indifferent between the two alternatiwes

Manufacture internaly

O Purchase from the autside suppler

b$-1.$ What will be the total relevant cost of $50,000$ subassemblies if they are manufactured internally?

Total relevant coct $(50,000$ subassumbies$)$ $$1,030,500$

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 uni. cost of subassumbly

$

$34\mathrm{.}35$

b$-3.$ Which course of action would you recommend if $50,000$ assembles are needed each year?

Indifferent between the two alternatiwes

Manufacture internaly

Purchase from the outside suppler