Lotions LLC produces a successful sunscreen and insect repelent. These products are sold

mostly in the Summer. Lotions LLC is considering diversifying its production to stabilize sales.

A natural expansion is into winter creams and lip balms to prevent dry skin and chapped lips.

After a thorough analysis, Lotions' CEO decided to introduce a lip balm this Winter. If the

product is successful Lotions LLC will expand its product line to winter creams. Lotions LLC

is planning to sell lip balms to wholesalers in boxes of $24$ lipsticks at $8$ a box. Lotions LLC

has excess capacity and it doesn't incur in additional fixed overheads to produce the lipsticks.

However, the firm's accounting system allocates $90000$ of fixed overheads to the product. For

an expected sales of $100000$ lipstick boxes, the firm's accounting department estimated the

following cost per lipstick box:

The costs in the previous table include the costs of producing the lipstick and its casing.

Lotions LLC is considering outsourcing the production of the casing. A supplier is willing to

sell boxes with $24$ casings for $1\mathrm{.}35$ each box. Lotion LLC expects to save $10\%$ of labor costs

and variable overheads, and $25\%$ of materials costs if it accepts the supplier's proposal.

Questions

Should Lotions LLC outsource the production of lipstick casings or produce them inter$-$

nally? Provide a numerical analysis to support your answer.

What is the maximum price per box of casings that Lotions LLC is willing to accept?

After surveying the market, the sales department reviewed its sales estimate. It now

expects to sell $120000$ liptstick boxes instead of $100000.$ Producing $120000$ lipstick

boxes requires the renting of additional production equipment for $40000.$

a$)$ If the minimum order the supplier of lipstick casings requires is for $100000$ boxes,

should Lotions LLC outsource production or produce internally? Provide numerical

evidence to support your answer.

b$)$ If there is no minimum order, should Lotions LLC outsource or produce internally?

What else should Lotions LLC consider when deciding whether to outsource or produce

internally?