Antilles Refining, N.V., of Aruba: Should They Accept the Outside Supplier's Offer?

Should Antilles Refining, N.V., of Aruba accept the outside supplier's offer to make drums at $21 per drum?

According to the managing director, Wim Niewindt, what are the potential cost savings if they accept the offer?

Antilles Refining, N.V., of Aruba's Potential Cost Savings

Antilles Refining, N.V., of Aruba can save an annual cost of $468,750 if they accept the outside supplier's offer of making drums at $21 per drum. The company's managing director, Wim Niewindt, stated that the company should stop making its own drums and go with the outside supplier's offer.

In my opinion, it would be a wise decision for Antilles Refining, N.V., of Aruba to accept the offer of the outside supplier and buy the drums from them. The current cost of manufacturing one drum is $27.25, which includes direct materials ($10.00), direct labor ($8.00), variable overhead ($4.00), and fixed overhead ($5.25).

However, the outside supplier is offering to sell the drums for $21 per drum. By buying from the outside, the company can save $468,750 annually since they use 75,000 drums per year. This would significantly reduce the company's annual expenses and increase profits.