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, Silvens 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 ChapOff is a lip balm that will be sold in a lipsticktype tube. The product will be sold to wholesalers in boxes of tubes for $ per box. Because of excess capacity, no additional fixed

manufacturing overhead costs will be incurred to produce the product. However, a $ charge for fixed manufacturing overhead will be absorbed by the product under the companys absorption costing system. 

 

Using the estimated sales and production of boxes of ChapOff, the Accounting Department has developed the following manufacturing cost per box:

Direct material $

Direct labor

Manufacturing overhead

Total cost $

The costs above relate to making both the lip balm and the tube that contains it As an alternative to making the tubes for ChapOff, Silven has approached a supplier to discuss the possibility of buying the tubes. The purchase

price of the supplier\'s empty tubes would be $ per box of  tubes. If Silven Industries stops making the tubes and buys them from the outside supplier, its direct labor and variable manufacturing overhead costs per box of

ChapOff would be reduced by  and its direct materials costs would be reduced by  

 

Required:

If Silven buys its tubes from the outside supplier, how much of its own ChapOff manufacturing costs per box will it be able to avoid? Hint: You need to separate the manufacturing overhead of $ per box that is shown

above into its variable and fixed components to derive the correct answer. 

 

What is the financial advantage disadvantage per box of ChapOff if Silven buys its tubes from the outside supplier?

What is the financial advantage disadvantage in total not per box if Silven buys boxes of tubes from the outside supplier?

Should Silven Industries make or buy the tubes?

What is the maximum price that Silven should be willing to pay the outside supplier for a box of tubes?

Instead of sales of boxes of tubes, revised estimates show a sales volume of boxes of tubes. At this higher sales volume, Silven would need to rent extra equipment at a cost of $ per year to make the

additional  boxes of tubes. Assuming that the outside supplier will not accept an order for less than  boxes of tubes, what is the financial advantage disadvantage in total not per box if Silven buys  boxes of tubes from the outside supplier? Given this new information, should Silven Industries make or buy the tubes? 

 

Refer to the data in Required Assume that the outside supplier will accept an order of any size for the tubes at a price of $ per box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy

from the outside supplier? 

Answer rating: 100% (QA)

Here are the solutions with calculations 1 Current manufacturing cost per box is Direct material 350 ... View the full answer