chapter 13 lo 3

Silven Industries, which manufactures and sells a highly successfut line of summer lotions and insect repellents, has decided to diversify in order to stabilze sales throughout the year. A natural area for the company to consider is the production of winter lotions and creams to prevent dry and chapped skan. After considerable research, a winter products line has been developed. However, Silven's president has decided to introduce only one of the new products for this coming winter. If the product is a success, further expansion in future years will be initiated. The product selected (called Ghap-Off) is a lip balm that will be sold in a lipstick-type tube. The product will be sold to wholesalers in boxes of 24 tubes for $10 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $96,000 charge for fixed manufacturing overhead will be absorbed by the product under the compary's absorption costing system. Using the estimated sales and production of 120,000 boxes of Chap.Off, the Accounting Department has developed the following manufacturing cost per box The costs above relate to making both the lip baim and the tube that contains it. As an alternative to making the tubes for Chap. Orf, Sitven has approoched a supplier to discuss the possibility of buying the tubes. The purchase price of the supplier's empty tubes Would be $1,20 per box of 24 tubes. If Silven industries stops making the tubes and buys them from the outside supplier, its direct labor and varlable manufacturing oveihead costs per box of Chap-Off would be reduced by 5% and its direct materials costs would be reduced by 20% The costs above relate to making both the lip balm and the tube that contains it As an alternative to making the tubes for Chap-Ofi. Silven has-approached a supplier to discuss the possibility of buying the tubes. The purchase price of the supplier's empty tubes would be $120 per box of 24 tubes. If Silven Industries stops making the tubes and buys them from the outside supplier, its direct labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 5% and its direct materials costs would be: rectuced by 20% Required: 1. If Silven buys its tubes from the outside supplier, how much of its own Chap-Off manufacturing costs per box will it be able to avoid? (Hint You need to separate the manufacturing overhead of $1.80 per box that is shown above into its vatiable and fixed components to derive the cortect answer) 2. What is the financial advantage (disadvantage) per bok of Chap-Off if Silven buys its tubes from the outside supplier? 3. What is the financial advantage (disadvantage) in total (not per bax) if Siven buys 120,000 boxes of tubes from the outside supplier? 4. Should Silven industries. make or buy the tubes? 5. What is the maximum price that Silven should be willing to pay the putside supplier for a box of 24 tubes? 6. Instead of sales of 120,000 boxes of tubes, revised estimates show a sales volume of 144.000 boxes of fubes. At this higher sales volume, Silven would need to rent extra equipment at a cost of $44,000 per year to make the additional 24,000 boves of tubes. Assuming that the outside supplier will not accept an order for tess than 144,000 boxes of tubes, what 4 the financial advantage (disadvantage) in total (not per box) if Silven buys 144,000 bcxes of tubes trom the outside supplier? Given this new information, should Sllven industries make or buy the fubes? 7. Refer to the data in Required 6 . Assume that the outside supplier will accept an order of any size far the tubes at a price of 5120 per. box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier? If Silven buys its tubes from the outside supplier, how much of its own chap-off marufacturing costs per bok will it be able to avoid? (Hint: You need to separate the manufactuning overhead of $1.80 per box that is shown above into its variable and fixed components to derive the correct answer.) (oo not round intermediate calculations. Round your answer to. 2 decimal placesi) What is the financial advantage (disadvantage) per box of Chap-off if Silven buys its tubes from the outside supplier? (Do not round intermediate calculations. Round your answer to 2 decimal places.) What is the financial advantage (disadvantage) in total (not per box) if Silven buys 120,000 boxes of tubes from the outside grpplier? What is the maximum price that Silven should be willing to pay the outside supplier for a box of 24 tubes? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Instead of sales of 120,000 boxes of tubes, revised estimates show a sales volume of 144,000 boxes of tubes: At this higher sales volume, Silven would need to rent extra equipment at a cost of $44,000 per year to make the addibional 24,000 boxes of tubes. Assuming that the outside supplier will not accept an order for less than 144,000 boxes of tubes, what is the financial advantage (disadvantage) in total (not per box) if 5 ilven buys 144,000 boxes of tubes from the outside supplier? Given this new information, should SJven industnes make or buy the tubes? Refer to the data in Required 6. Assume that the outside supplier will accept an order of any size for the tubes at a price o \$1.20 per box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier? (Round your intermediate calculations to 2 decimal places.)