Silven Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided to diversity in order to stabilize sales throughout the year. A natural area for the company to consider is the production of winter lations 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 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-om 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 $9 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $139,500 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 155,000 boxes of Chap-Off, the Accounting Department has developed the following manufacturing cost per box $4.30 Direct saterial Direct Labor Manufacturing owerhead Total coat 1.0 8. The costs above relate to making both the lip balm and the tube that contains It Asan iterative to making the tubes for Chap-on, Silven has approached a supplier to discuss the possibility of buying the tubes. The purchase price of the suppliers empty tubes would be $135 per box of 24 tubes. If Silver Industries stops making the tubes and buy them from the outside supplies its direct tabor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 10% and its direct materials costs would be reduced by 20% Required: 1. If Silven buys its tubes from the outside supplier, how much of its own Chap-Off manufacturing costs per box will it be able to avoid? (Hint You need to separate the manufacturing overhead of $190 per box that is shown above into its variable and fixed components to derive the correct answer.) 2 What is the financial advantage (disadvantage) per box of Chap-Off if Silven buys its tubes from the outside supplier? 3. What is the financial advantage (disadvantage) in total (not per box) if Silven buys 155,000 boxes of tubes from the outside supplier? 4. Should Silven Industries make or buy the tubes? 5. What is the maximum price that Siiven should be willing to pay the outside supplier for a box of 24 tubes? 6. Instead of sales of 155,000 boxes of tubes, revised estimates show a sales volume of 191,000 boxes of tubes. At this higher sales volume, Silven would need to rent extra equipment at a cost of $56,000 per year to make the additional 36.000 boxes of tubes Assuming that the outside supplier will not accept an order for less than 191,000 boxes of tubes, what is the financial advantage (disadvantage) in total (not per box) # Siven buys 191.000 boxes of tubes from the outside supplier? Given this new information, should Siven Industries make or buy the tubest 7. Refer to the data in Required 6. Assume that the outside supplier will accept an order of any size for the tubes at a price of $1.35 per box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg4 Regs Reg 6 Reg 7 If Silven buys its tubes from the outside supplier, how much of its own Chap Off manufacturing costs per box will it be able to avoid? (Hint: You need to separate the manufacturing overhead of $1.90 per box that is shown above into its variable and fixed components to derive the correct answer. Do not round intermediate calculations. Round your answer to 2 decimal places Silven Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided to diversity 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 $9 per box Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $139,500 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 155,000 boxes of Chop-off, the Accounting Department has developed the following manufacturing cost per box $4.30 Direct material Direct labor Manufacturing overhead Total coat 53.80 The costs above relate to making both the lip balm and the tube that contains it as an alternative 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 $135 per box of 24 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 Chop Off would be reduced by 10% and its direct materials costs would be reduced by 20%
