"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 $21 per drum, we would be paying $4.70 less than it costs us to manufacture the drums in our own plant. since we use 70,000 drums a year, that would be an annual cost savings of $329,000." antilles refining's current cost to manufacture one drum is given below (based on 70,000 drums per year):

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AnShults AnShults · Answer 1 · 2020-05-21T13:35:16+02:00

Answer:

In my opinion we ought to stop making our own drums and accept that outside supplier's offer and moreover is discussed below in detail.

Explanation:

1. Calculation Amount ($)

Direct material 75000*10.65 798,750

Direct labor 75000*9*(1-0.25) 506,250

variable overhead 75000*1.6(1-0.25) 90,000

Cost of supervision 52,500

rent 157,500

total relevant cost of making 1,605,000

Less: cost to purchase 75000*21 1,575,000

Financial Advantages/ {disadvantages} 30,000

2. Calculation Amount ($)

Direct material 87500*10.65 931,875

Direct labor 87500*9*(1-0.25) 590,625

variable overhead 87500*1.6*(1-0.25) 105,000

Cost of supervision 52,000

rent 157,500

total relevant cost of making 1,837,500

Less: cost to purchase 87500*21 1,837,500

Financial Advantages/ {disadvantages} 0

3. Calculation Amount ($)

Direct material 105000*10.65 1,118,250

Direct labor 105000*9*(1-0.25) 708,750

variable overhead 105000*1.6*(1-0.25) 126,000

Cost of supervision 52,500

rent 157,500

total relevant cost of making 2,163,000

Less: cost to purchase 105000*21 2,205,000

Financial Advantages/ {disadvantages} * 42,000