PROBLEM 12-23 Make or Buy Decision LO12-3 Silven Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided to diversify in order to stabilize sales throughout the year. A natural area for the company to consider is the production of winter lotions and creams to prevent dry and 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 prod- uct is a success, further expansion in future years will be initiated The product selected (called Chap-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 $8 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the prod- uct. However, a $90,000 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 of Chap-Off, the Accounting Depart ment has developed the following manufacturing cost per box Direct material Direct labor Manufacturing overhead Total cost $3.60 2.00 $7.00 The costs above relate to making both the lip balm and the tube that contains it. As an alterna- ive to making the tubes for Chap-Off, Silven has approached a supplier to discuss the possibility of buying the tubes. The purchase price of the supplier's empty tubes would be $1.35 per box of 4tubes. If Silven Industries stops making the tubes and buys them from the outside supplier, its rec 1 r and variable manufacturing overhead costs per box of Chap-Off would be reduced by 0% and its direct materials costs would be reduced by 25% n buys its tubes from the outside supplier, how much of its own Chap-Off manufac- ring costs per box will it be able to avoid? (Hint: You need to separate the manufacturing ad of $1.40 per box that is shown above into its variable and fixed components to derive the the financial advantage (disadvantage) per box of Chap-Off f Siven buys its tubes the financial advantage (disadvantage) in total (not per box) if Silven buys 100.000 the correct answer.) boxes of tubes from the outside supplier