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
