Reference no: EM132706975

Purchase the drums from an outside supplier at $19 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 20%. The old equipment has no resale value. Supervision cost ($77,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment's capacity would be 110,000 drums per year.

• The company's total general company overhead would be unaffected by this decision. (Round all intermediate calculations to 2 decimal places.)

Required:

Problem 1. Assuming that 70,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier?

Problem 2. Assuming that 96,250 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier?

Problem 3. Assuming that 110,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier?