NV, of At a price of $18 per d the drums In our own plant. Since we use 65,000 d
ID: 2550110 • Letter: N
Question
NV, of At a price of $18 per d the drums In our own plant. Since we use 65,000 drums a year, that would be an annual cost savings of $432.250 current cost to manufacture one drum is given below (based on 65,000 drums per year) we would be $6 65 less than it costs us to manufacture Antilles Refining's 7.50 Fixed , $1.65 depreciation, and, se.90 supervision) Total cost per drum A decision about whether to make or buy the drums is c the drums is especially Important at this time because the equipment being used to make etely 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 $175.500 per year Altemative 2: Purchase the drums from an outside supplier at $18 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 ($58,500 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 225,000 drums per year The company's total general company overhead would be unaffected by this decision. (Round all intermediate calculations to 2 Required 1. Assuming that 65,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? 2 Assuming that 195,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? that 225,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier? (For all requirements, enter any "disadvantages" as a negative value. Do not round Intermedlate calculetions.)Explanation / Answer
Production need Financial Advantage (disadvantage) of buying the drums 1 65000 drums $ 1,56,000 W.N.1 2 195000 drums $ - W.N.2 3 225000 drums $ -36,000 W.N.3 W.N.1 65000 Relevent Cost of manufacturing Direct Material $ 6,82,500 Direct Labour $ 3,41,250 Variable overhead $ 68,250 Fixed Cost Rent $ 1,75,500 Supervision cost $ 58,500 Total $ 13,26,000 relevent cost of buying $ 11,70,000 Advantage of buying $ 1,56,000 W.N.2 195000 Relevent Cost of manufacturing Direct Material $ 20,47,500 Direct Labour $ 10,23,750 Variable overhead $ 2,04,750 Fixed Cost Rent $ 1,75,500 Supervision cost $ 58,500 Total $ 35,10,000 relevent cost of buying $ 35,10,000 Advantage of buying $ - W.N.3 225000 Relevent Cost of manufacturing Direct Material $ 23,62,500 Direct Labour $ 11,81,250 Variable overhead $ 2,36,250 Fixed Cost Rent $ 1,75,500 Supervision cost $ 58,500 Total $ 40,14,000 relevent cost of buying $ 40,50,000 Advantage of buying $ -36,000
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