1. Assist Jack in his decision, prepare an analysis to compare the alternative given above. 25,000 bottles are needed each year. should the company buy or make the bottles? explain why? 2. suppose the...

A company sells a chemical compound for which it makes special plastic bottles. The equipment being used to make these containers is worn out and must be replaced. Jack, the managing director, believes that it would be cheaper if the company stopped making these bottles and accepted the price of $9 per bottle offered by an outside supplier. Thus a decision about whether to make or buy the containers needs to be made. The comapy current cost to manufacture one container (based on25,000 production and sales per year) is Direct materials $3.61 Direct labour 3.80 Variable overhead 0.80 Fixed overhead: General company overhead 2.25 Depreciation of equipment 1.34 3.59 Total cost per bottle $11.80 If the company decides to purchase new equipment, it would cost $262,500 and be depreciated over a useful life of 5 years. The new equipment is expected to be more efficient than the current equipment and thus direct labour and variable overheads would be reduced by 35 percent. These overheads are avoidable if the bottles are purchased. The direct materials cost per bottle and general company overhead would remain the same. The new equipment could make up to45,000 bottle per year and still remain within the relevant range. Alternatively the company would sign a 5-year contract to purchase bottle from the outside supplier at $9 per bottle.