The product selected (called Chap-Off) is a lip balm that will be sold in a lipstick like tube.The product will be 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 the product.However, a $90,000 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 100,000 boxes of Chap-Off, the Accounting Department has developed the following cost per box:

Direct material$3.60

Direct labor2.00

Manufacturing overhead1.40

Total cost$7.00

The costs above include costs for producing both the lip balm and the tube that contains it.As an alternative to making the tube, Silven has approached a supplier to discuss the possibility of purchasing the tubes for Chap-Off.The purchase price of the empty tubes from the supplier would be $1.35 per box of 24 tubes.If Silven industries accepts the purchase proposal, direct labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 10% and direct material costs would be reduced by 25%.

Should Silven Industries make or buy the tubes?Use calculations to prove answer