Silven Industries, which manufactures and sells 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, Silven developed a new lip balm called Chap$-$Off that is 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 Chap$-$Off. However,

a $$139,500$ charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system.

Using estimated sales and production of $155,000$ boxes of Chap$-$Off, the Accounting Department developed the following

manufacturing cost per box:

The costs above include the lip balm and the tube containing it$.$ As an alternative to making the tubes for Chap$-$Off, Silven is

considering buying them from an outside supplier for $$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 decrease by $10\%$

and its direct materials costs would drop by $20\%.$

Required:

If Silven buys its tubes from the outside supplier, how much of its own Chap$-$Off manufacturing costs per box will it avoid? $($Hint: You

need to separate the manufacturing overhead of $$1\mathrm{.}90$ per box shown above into its variable and fixed components.$)$

What is the financial advantage $($disadvantage$)$ per box of Chap$-$Off if Silven buys its tubes from the outside supplier?

What is the financial advantage $($disadvantage$)$ in total $($not per box$)$ if Silven buys $155,000$ boxes of tubes from the outside supplier?

Should Silven Industries make or buy the tubes?

What is the maximum price Silven should be willing to pay the outside supplier for a box of $24$ tubes?

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 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$)$ if Silven buys $191,000$ 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 $6.$ Assume the outside supplier will accept an order of any size for the tubes at a price of $$1\mathrm{.}35$ per

box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier?

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