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 $$9$ per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce Chap$-$Off. However, a $$116,000$ charge for fixed manufacturing overhead will be absorbed by the product under the company$$s absorption costing system.

Using estimated sales and production of $145,000$ boxes of Chap$-$Off, the Accounting Department developed the following manufacturing cost per box:

Direct material $ $3\mathrm{.}90$

Direct labor $2\mathrm{.}20$

Manufacturing overhead $1\mathrm{.}70$

Total cost $ $7\mathrm{.}80$

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{.}65$ 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 $30\%.$

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{.}70$ 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 $145,000$ 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 $145,000$ boxes of tubes, revised estimates show a sales volume of $179,000$ boxes of tubes. At this higher sales volume, Silven would need to rent extra equipment at a cost of $$60,000$ per year to make the additional $34,000$ boxes of tubes. Assuming the outside supplier will not accept an order for less than $179,000$ boxes of tubes, what is the financial advantage $($disadvantage$)$ in total $($not per box$)$ if Silven buys $179,000$ 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{.}65$ per box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier?