Problem 11-23 Make or Buy Decision [LO11-3] Silven Industries, which manufectures and sells a highly successful line of summer lotions and insect repellents, has decided to diversify in order to stabilize sales throughout the yeer. A natural area for the company to consider is the production of winter lotions and creams to prevent dry and chapped skin. After considerable research, a winter products line has been developed. However, Siven's president has decided to ineoduce 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 Chap-Of) is o lip balm that will be sold in a lipstick type tube. The product will be soild to wholesalinsin boxes of 24 tubes for $8 per box. Because of excess capacity no additional fixed maenufacturin g overhead costs wil be incurred so produce the product. However, a $90,000 charge for fixed manufacturing company's absorption costing system. overhead wil be absorbed by the product under the Using the estimated sales and production of 100,000 boxes of Chap-Off,the Accounting Depertment has developed the following manufecturing cost per box 53.60 2.80 Direct material Direct Labor Hanufacturing overhead Total cost 57.88 The costs above relate to making both the lip balm and the tube that contains it. As an elternetive to making the tubes for Chap-on Silven has approached a supplier to discuss the possibility of buying the tubes. Tr would be $1.35 per box of 24 tubes. If Silven Industries stops making the tubes and buys them from the outoide suppliet, ts drect labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 10% and its direct materials costs would be reduced by 25%