roblem 14-21 Make or Buy Decision [LO3]

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 chapped skin.

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 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 product. However, a $88,920 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 114,000 boxes of Chap-Off, the Accounting Department has developed the following cost per box: Direct materials$2.9 Direct labor1.0 Manufacturing overhead2.2 Total cost $6.1 The costs above include costs for producing both the lip balm and the tube that contains it. As an alternative to making the tubes, Silven has approached a supplier to discuss the possibility of purchasing the tubes for Chap-Off. The purchase price of the empty tubes from the supplier would be $1.16 per box of 24 tubes. If Silven Industries accepts the purchase proposal, direct labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 7% and direct materials costs would be reduced by 33%. Requirement 1:(a) Calculate the total variable cost of one box of Chap-Off if the company manufactures all of its own tubes from start to finish.(Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) Total variable cost per box$

(b) Calculate the total variable cost of one box of Chap-Off if the tubes are purchased from the outside supplier.(Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) Total variable cost per box$ (c)Should Silven Industries accept/reject the outside supplier's offer?(Click to select)AcceptReject Requirement 2: What is the maximum price that Silven Industries should be willing to pay the outside supplier per box of24 tubes?(Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.) Maximum price$per box Requirement 3: Instead of sales of 114,000 boxes, revised estimates show a sales volume of 129,000 boxes. At this new volume, additional equipment must be acquired to manufacture the tubes at an annual rental of $48,000. Calculate the cost under the three alternatives.(Round your total variable cost per box to 2 decimal places. Omit the "$" sign in your response.) (a)Total variable cost to produce 129,000 boxes of Chap-off, if all tubes required are produced internally: Total Variable Cost$ (b)Total variable cost to produce 129,000 boxes of Chap-off, if all tubes required are purchased externally: Total Variable Cost$ (c)What is the total variable cost of producing 129,000 boxes of Chap-off, if 114,000 Chap-off boxesare produced with tubes manufactured internally and tubes for remaining 15,000 Chap-offboxes are purchased externally? Total Variable Cost$