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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, NV., of Aruba. "At a price of 150 florins per drum, we would be paying 10 florins less than it costs us to manufacture the drums in our own plant. (The currency in Aruba is the florin, denoted by Afl.) Since we use 400,000 drums a year, we would save 4,000,000 florins on an annual basis." Antilles Refining's present cost to manufacture one drum follows (based on 400,000 drums per year): Afl 39.70 31.00 22.00 Direct material Direct labour Variable overhead Fixed overhead (Af124.60 general company overhead, Af122.20 depreciation and, Af120.50 supervision) Total cost per drum 67.30 Af1160.00 A decision about whether to make or buy the drums is especially important at this time, since the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are as follows: Alternative 1: Purchase new equipment and continue to make the drums. The equipment would cost Af15,400,000, it would have a five-year useful life and no salvage value. The company uses straight-line depreciation. Alternative 2: Purchase the drums from an outside supplier at Afl150 per drum under a five-year contract. 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 varlable overhead costs by 30%. The old equipment has no resale value. Supervision cost (Af18,200,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 8,200,000 drums per year. The company has no other use for the space being used to produce the drums. cost (AT18,209 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 8,200,000 drums per year. The company has no other use for the space being used to produce the drums. The company's total general company overhead would be unaffected by this decision. Required: 1-a. Calculate the total costs and costs per drum under the two alternatives. Assume that 400,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum Total Differential Costs-400,000 Drums Make Buy Make Buy Outside supplier's price Afl Afil Direct materials All Direct labour Variable overhead Supervision Depreciation All Afl Afi Total cost 1-b. Should the company make or buy based on analysis in part (1-a)? O Make O Buy 2-a. Calculate the total costs and costs per drum under the two alternatives. Assume that 250,000 drums are needed each year. (Round "Cost Per Drum" answers to 2 decimal places.) Differential Costs Per Drum Total Differential Costs-250,000 Drums Make Buy Make Buy Afi Afl Outside supplier's price All Direct materials Afl Direct labour Variable overhead Supervision Depreciation Afl Afi AfI Afl Total cost "In my opinion, we ought to stop making our own drums and accept that outside supplier's offer," said director of Antilles Refining, N.V., of Aruba. "At a price of 150 florins per drum, we would be paying 10 flo manufacture the drums in our own plant. (The currency in Aruba is the florin, denoted by Afl.) Since we would save 4,000,000 florins on an annual basis." Antilles Refining's present cost to manufacture one d drums per year): Afl 39.70 31.00 22.00 Direct material Direct labour Variable overhead Fixed overhead (Afl24.60 general company overhead, Af122.20 depreciation and, Af120.50 supervision) Total cost per drum 67.30 Af1160.00 A decision about whether to make or buy the drums is especially important at this time, since the equip drums is completely worn out and must be replaced. The choices facing the company are as follows: drums and accept that outside supplier's offer," said Wim Niewindt, managing price of 150 florins per drum, we would be paying 10 florins less than it costs us to irrency in Aruba is the florin, denoted by Afl.) Since we use 400,000 drums a year, we ." Antilles Refining's present cost to manufacture one drum follows (based on 400,000 Afl 39.70 31.00 22.00 -head, Af122.20 67.30 Afl160.00 drums per year): Afl 39.70 31.00 22.00 Direct material Direct labour Variable overhead Fixed overhead (Afl24.60 general company overhead, Af122.20 depreciation and, Af120.50 supervision) Total cost per drum 67.30 Af1160.00 A decision about whether to make or buy the drums is especially important at this time, s drums is completely worn out and must be replaced. The choices facing the company ar Alternative 1: Purchase new equipment and continue to make the drums. The equip a five-year useful life and no salvage value. The company uses straight-line deprec A decision about whether to make or buy the drums is especially important at this time, since the equip drums is completely worn out and must be replaced. The choices facing the company are as follows: Alternative 1: Purchase new equipment and continue to make the drums. The equipment would co a five-year useful life and no salvage value. The company uses straight-line depreciation. Alternative 2: Purchase the drums from an outside supplier at Afl150 per drum under a five-year cc a The new equipment would be more efficient than the equipment that Antilles Refining has been using ar manufacturer, would reduce direct labour and variable overhead costs by 30%. The old equipment has r cost (Afl8,200,000 per year) and direct materials cost per drum would not be affected by the new equip capacity would be 8,200,000 drums per year. The company has no other use for the space being used t

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