$$That old equipment for producing oil drums is worn out,$$ said 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 oil 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 oil drums for $$150,000$ per year.

Alternative $2$: Purchase oil drums from an outside supplier for $$17\mathrm{.}80$ each.

Hondrich Company$$s costs per unit of producing the oil drums internally $($with the old equipment$)$ are

given below. These costs are based on a current activity level of $30,000$ units per year:

Direct materials $ $4\mathrm{.}90$

Direct labour $10\mathrm{.}00$

Variable overhead $1\mathrm{.}20$

Fixed overhead $($$$2\mathrm{.}50$ supervision, $$1\mathrm{.}80$

depreciation, and $$4\mathrm{.}00$ general

company overhead$)$

$8\mathrm{.}30$

Total cost per unit $ $24\mathrm{.}40$

The new equipment would be more efficient and, according to the manufacturer, would reduce direct

labour costs and variable overhead costs by $25\%.$ Supervision cost $($$$75,000$ per year$)$ and direct

materials cost per unit would not be affected by the new equipment. The new equipment$$s capacity

would be $60,000$ oil 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 alternatives given above. Assume that $30,000$ oil drums are

needed each year.

What will be the total relevant cost of $30,000$ oil drums if they are manufactured internally as

compared to being purchased?

What would be the per unit cost of each oil drum manufactured internally?

Which course of action would you recommend to the president?

$2.$ Assume that $50,000$ oil drums are needed each

What will be the total relevant cost of $50,000$ oil drums if they are manufactured internally?

What would be the per unit cost of each oil drum manufactured internally? $($Do not round

intermediate calculations. Round your answer to $2$ decimal places.$)$

Which course of action would you recommend if $50,000$ oil drums are needed each year? Please help me with this question.