Silven Industrles, 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, Slven developed a new lip balm called Chap$-$Off that is sold to wholesalers in boxes of $24$ tubes for $$8$

per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be Incurred to produce Chap$-$Off. However,

a $$135,000$ charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system.

Using estimated sales and production of $135,000$ 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{.}50$ per box of $24$ tubes. If Silven Industrles 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 manufacturing overhead of $$1\mathrm{.}50$ per box shown above Into its varlable and fixed components.$)$

What Is the financlal advantage $($dlsadvantage$)$ per box of Chap$-$Off If Slven buys Its tubes from the outside supplier?

What Is the financlal advantage $($disadvantage$)$ In total $($not per box$)$ If Silven buys $135,000$ boxes of tubes from the outside supplier?

Should Silven Industrles 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 $135,000$ boxes of tubes, revised estimates show a sales volume of $167,000$ boxes of tubes. At this higher sales

volume, Slven would need to rent extra equipment at a cost of $$52,000$ per year to make the additional $32,000$ boxes of tubes.

Assuming the outside supplier will not accept an order for less than $167,000$ boxes of tubes, what is the financial advantage

$($dlsadvantage$)$ In total $($not per box$)$ if Silven buys $167,000$ boxes of tubes from the outside supplier? Given this new Information,

should Silven Industrles make or buy the tubes?

Refer to the data in Requlred $6.$ Assume the outside supplier will accept an order of any size for the tubes at a price of $$1\mathrm{.}50$ per

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