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"That old equipment for producing oll drums is worn out," sald 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 oll 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 oll drums for $168,000 per year. A/ternative 2: Purchase oll drums from an outside supplier for $21.05 each. Hondrich Company's costs per unit of producing the oll drums Internally (with the old equipment) are given below. These costs are based on a current actlvity level of 30,000 units per year: The new equipment would be more efficlent and, according to the manufacturer, would reduce direct labour costs and varlable overhead costs by 25%. Supervision cost ($84,000 per year) and direct materlals cost per unit would not be affected by the new equipment. The new equipment's capacity would be 50,000 oll 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 alternatlves given above. Assume that 30,000 oll drums are needed each year. a. What will be the total relevant cost of 30,000 subassembles if they are manufactured Internally as compared to beIng purchased? b. What would be the per unit cost of the each subassembly manufactured Internally? (Do not round Intermedlate calculations. Round your answer to 2 decimal places.) 2. Seeboch is unsure what the company should do and would like an onslysis showing the unit costs and total costs for esch of the two slternetives given above. a-1. What will be the total relevant cost of 42,000 subossemblies if they are manufactured internally? Q Answer is comblete but not entirelv correct. a.2. What would be the per unit cost of subsssembly manufactured internally? (Do not round Intermedlate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. a-3. Which course of action would you recommend if 42,000 sssemblies are needed each year? Manufacture internally Indifferent between the two alternatives Purchase from the outside supplier b-1. What will be the total relevont cost of 50,000 subossemblies if they are monufactured internally? b-2. What would be the per unit cost of subsssembly manufactured internally? (Do not round intermedlate calculations. Round your answer to 2 decimal places.)

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