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"In my opinion, we ought to stop moking our own drums and accept that outside supplier's offec," sald Wim Niewindt, managing director of Antilles Refining, N.V. of Aruba. "At a peice of $19 per drum, we would be paying $6.45 less than it costs us to manufacture the drums in our own plant. Since we use 60,000 drums a year, that would be an annual cost sovings. of $387,0002 Antilles Refining's current cost to manufacture one drum is given below pased on 60,000 drums per year) A decision about whether to make or buy the drums is espocially important it this time bocouse the equipment being used to moke the drums is completely wom out and must be replocod. The choices facing the company are: Alternative t Rent new equipment and continue to make the drums. The equipment would be rented for $198,000 per vear. Aiternative 2: Purchase the drums from an outside supplier at $19 por dnum The new equipment would be more efficient than the equlpment that Antiles Refining has been using and, acconding to the manufacturer, would reduce direct labor and variable overthead costs by 30%. The old equipment has no resale value. Supervis on cost (\$66.000 per year) and direct moterials cost per drum would not be affected by the new equipment. The new equipment's capocity would be 150,000 drums per yeat The companys total genetal company ovethead would be unaflected by this decision. Required: 1. Assuming that 60,000 drums are needed each yeat, what is the financiat Advantage (disadvantage) of buying ihe drums from an outside supplier? 2. Assuming that 120,000 drums are needed each year, what is the financial acvantage (disedvantage) of buying the drums from an outside supplien? 3. Assuming that 150,000 drums are needed each yeac, what is the financial advantage (disadvantage) of buying the drums from an outside supolier

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