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 addltional 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:

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

considering buyling 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 varlable manufacturing overhead costs per box of Chap$-$Off would decrease by $10\%$

and its direct materlals 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 avold? $($Hint: You

need to separate the manufacturling overhead of $$1\mathrm{.}70$ per box shown above into its varlable and fixed components.$)$

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

What is the financlal advantage $($dlsadvantage$)$ 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 addltional $34,000$ boxes of tubes.

Assuming the outside supplier will not accept an order for less than $179,000$ boxes of tubes, what is the financlal 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 slze 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?

Complete this question by entering your answers in the tabs below.