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 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 14 tubes for $6.70 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $80,000 charge for fixed manufacturing overhead will be absorbed by the product under the companys absorption costing system.

Slven Industries, which manufactures and sells a highly successful line of summer lotions and insect repelents, has dacided 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 daveloped However, Siven's president has decided to introduce only one of the new products for this coming winter. If the product is a success, furthar expansion in furture years will be initiated The product selected (called Chap-Off) is a Ip balm that will be sold in a lipstick-type tube. The product will be sold to wholasalers in boxes of 14 tubas for $6 70 per hox Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $80,000 charge for fixed manufacturing ovarhead will ba absorbed by the product under the company's absorption costing system. Using the estimated salas and production of 100,000 boxes of Chap-Off, tha Accounting Dapartment has developed the folowing c ost per box: Direct materials Direct labor Manufacturing overhead $3.10 1.00 1.10 Total cost $5 20 The cosls above include costs for producing both the lip balm and the tube that contains it As an alternative to making the tubes, Silven has approachad a suppliar to discuss the possibiity of purchasing the tubes for Chap-OIf. The purchase price of the empty tubes from the supplier would be 50.90 per box of 14 tubes. If Silvan Industries accepts the purchase proposal, direct labor and variable manufacturing overhead cost per box of Chap-Off would be reduced by 10% and direct materials costs would be reduced by 20%. Required: 1a. Calculate the total varlable cost of producing one box of Chap-Off Do not round Intermedlate calculations. Round your answer to 2 decimal places. l variable per box 1b. Assume that the tubes for the Chap-Off are purchased from the outside supplier, calculate the totel variable cost of producing one box of Chap-Off (Do not round intermediate calculations. Round your answer to 2 decimal places) I variable cast per bax 1c. Should Silven Industries maka or buy the tubas? O Maks O Buy 2. What would be the maximum purchase price acceptable to Sven Industries? (Do not round intermediate calculations, Round your answer to 2 decimal places.) per box of tubes 3 Instead of sales of 100,000 boxes revised estimates show a sales volurme of 127,000 boxes At this new volume, additional equipment must be acquired to manufacture the tubes at an annual rental of $28,000 Assume that the outside supplier will nat accept an order far less than 127,000 boxes a. Calculate the total relevant cost of making 127,000 boxes and total relevant cost of buying 127,000 boxas. Do not round intermediate calculations.) Total cost b. Based on the above calculations, should Silven Industrles make or buy the boxes? O Make O Buy Refer to the data in (3) above. Assume that the autside supplier will accept an arder of any size for the tubes at $0.90 per box. Which of these is the best altematve? O Make all 127,000 boxes Buy all 127,000 boxes O Make 100,000 boxes and buy 27.000 boxes O Make 28,000 boxes and buy 28,000 boxes