Kiel Corporation manufactures and sells summer lotions and insect repellents. To counter the cyclical nature of its business, the company decided to diversify its business through the production of winter creams and lotions.

A line of products catered for the winter season was developed after considerable research. However, the company's president decided to launch only one of the new products for the coming winter. Expansion plans would be initiated if the new product were to be successful.

The new product is a lip balm called Glide, and will be sold as a lipstick-like tube. The product will be sold to wholesalers in boxes of 48 tubes for $16 per box. There is sufficient production capacity for the new line of products without having to incur additional fixed manufacturing overhead costs. However, a $180,000 charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system.

Using the estimated sales and production of 100,000 boxes, the Accounting Department has developed the following expected cost per box:

Total Cost Direct labour $4.00 Direct material 7.20 Total manufacturing overhead 2.80 Total cost $14.00