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 $$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:

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 $$1\mathrm{.}35$ 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 Chap$-$Off would be reduced by $10\%$ and its direct materials costs would be

reduced by $20\%.$