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$$In my opinion, we ought to stop making our own drums and accept that outside supplier$$s offer,$$ said Wim Niewindt, managing director of Antilles Refining, N$.$V$.,$ of Aruba. $$At a price of $$20$ per drum, we would be paying $$5\mathrm{.}45$ less than it costs us to manufacture the drums in our own plant. Since we use $80,000$ drums a year, that would be an annual cost savings of $$436,000.$ Antilles Refining$$s current cost to manufacture one drum is given below $($based on $80,000$ drums per year$)$:

Direct materials $ $12\mathrm{.}00$

Direct labor $6\mathrm{.}50$

Variable overhead $1\mathrm{.}50$

Fixed overhead $($$$2\mathrm{.}90$ general company overhead, $$1\mathrm{.}80$ depreciation, and $$0\mathrm{.}75$ supervision$)5\mathrm{.}45$

Total cost per drum $ $25\mathrm{.}45$

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 $1$: Rent new equipment and continue to make the drums. The equipment would be rented for $$180,000$ 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 labor and variable overhead costs by $30\%.$ The old equipment has no resale value. Supervision cost $($$$60,000$ per year$)$ and direct materials cost per drum would not be affected by the new equipment. The new equipment$$s capacity would be $150,000$ drums per year.

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

Required:

$1.$ Assuming that $80,000$ drums are needed each year, what is the financial advantage $($disadvantage$)$ of buying the drums from an outside supplier?

$2.$ Assuming that $100,000$ drums are needed each year, what is the financial advantage $($disadvantage$)$ of buying the drums from an outside supplier?

$3.$ Assuming that $150,000$ drums are needed each year, what is the financial advantage $($disadvantage$)$ of buying the drums from an outside supplier?

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