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 compony to consider is the production of winter lotions and creams to prevent dry and chapped skin. After considerable fesearch, 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 wholesolers in boxes of 24 tubes for $11 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 company's absorption costing system. Using the estimated sales and production of 100,000 boxes of Chap-O1f, the Accounting Department has developed the following manufacturing cost per box: The costs above relate to making both the lp baim and the tube that contains it. As an alternative to making the tubes for Chap. Oft, Silven has approached a supplier to discuss the possibility of buying the tubes. The purchase peice of the supplier's enpty tubes would be $170 per boc of 24 tubes, If Silven industries stops making the fubes and buys them from the outside supplier, its direct labor and variable manufacturing overhead costs per box of Chap.Oft would bo reduced by 10% and its direct materials costs would be reduced by 25%. Required: 1. If Silven buys its tubes from the outside supplier, how much of its own Chap-Otf manutacturing 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 coenponents to derive the correct answor) 2. What is the financial advantage (disadvantage) per box of Chap-Oif is Siven buys its tubes from the outside supplier? 3. What is the financial advantage (disadvantage) in total (not per box) if Salven buys 100,000 boxes of tubes from the outside supplice? 4. Should Silven industries make or buy the tulbes? 5. What is the maximum price that Siven should be willing to pay the outside supplier for a box of 24 tubes? 6 . Instead of sales of 100,000 bowes of tubes, revised estimotes show sales volume of 125,000 bowes of tubes. At this higher sales vohume, Silven would need to rent extra equipment at a cost of 545,000 per year to make the additional 25.000 boxes of tubes. Assuming that the outside supplier will not accept an order for less than 125.000 boxes of tubos, what is the financial advantage (disadvantage) in total (not per bow) if Siven buys 125.000 bexes of tubes from the outside supplier? Glven this new information, should Siven Industries make of buy the tubes? 7. Refer to the data in Required 6. Assume that the outside supplier will accept an oeder of any size for the tubes at a price of $1.70 per box. How many boxes of tubes should Silven make? How many bowes of tubes should at buy from the outside suppler? Complete this question by entering your answers in the tabs below. 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 avold? (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 intormediate calculations. Rlound your answer to 2 decimal Complete this question by entering your answers in the tabs below. What is the financial advantage (disadvantage) per box of Chap-off if Silven buys its tubes from the outside supplier? (Do not round intermediate calcuiations. Round your answer to 2 decimal places.) Complete this question by entering your answers in the tabs below. What is the financlal advantage (disadvantage) in total (not per box) if Silven buys 100,000 boxes of tubes from the outside supplier? Complete this question by entering your answers in the tabs below. Should Silven Industries make or buy the tubes? Complete this question by entering your answers in the tabs below. What is the maximum price that Siven should be willing to pay the outside supplier for a box of 24 tubes? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Complete this question by entering your answers in the tabs below. Instead of sales of 100,000 bowet of tubes, revised estimstes show a sales volume of 125 , o00 bowes of tubes. At this higher ales volume, Silven would need to rent extra cquipment at a cost of 345,000 per year to make the additional 25 , 000 baxes of tubes. Assuming that the outside supplier will not actept an erder for less than 125,000 boves of tubes, what is the financial advantage (disadyantage) in total (not per box) if silven buys 125,000 boxes of tubes from the outalde supplier? Given this new information, should Silven Industries make or buy the tubes? Complete this question by entering your answers in the tabs below. 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 $1.20 per bax. How many boxes of tubes should 5 iven make? How many boxes of tubes should it buy from the outside supplier? (Round your intermediate calculations to 2 decimal places.)
