The product selected is a lip balm to be sold in a lipstick-type tube. The company will sell the product to wholesalers in boxes of 25.00 tubes for $18.00 per box. Because of available capacity, the company will incur no additional fixed charges to produce the product. However, to allocate a fair share of the companys present fixed costs to the new product, the product will absorb a $155,000 fixed charge. Using the estimated sales and production of 100,000 boxes of lip balm as the standard volume, the accounting department has developed the following costs per box of 25.00 tubes:

Direct labour		$3.90
Direct materials		5.95
Total overhead		3.05
Total		$12.90

Whispering Winds Outdoors has approached a cosmetics manufacturer to discuss the possibility of purchasing the tubes for the new product. The purchase price of the empty tubes from the cosmetics manufacturer would be $1.95 per 25.00 tubes. If Whispering Winds Outdoors accepts the purchase proposal, it is estimated that direct labour and variable overhead costs would be reduced by 10% and direct materials costs would be reduced by 20%.

Should Whispering Winds Outdoors make or buy the tubes? (Round answers to 2 decimal places, e.g. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).)

		Make (Per Box)		Buy (Per Box)		Net Income Increase (Decrease)
select an item Purchase priceTotal costVariable overheadsDirect labourDirect materials		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Total costVariable overheadsPurchase priceDirect labourDirect materials		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Purchase priceDirect labourTotal costVariable overheadsDirect materials		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Direct materialsTotal costDirect labourVariable overheadsPurchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a closing name for this statement Purchase priceDirect labourDirect materialsTotal costVariable overheads		$enter a total amount		$enter a total amount		$enter a total amount

Whispering Winds should select an option makebuy the tubes.

What would be the maximum purchase price acceptable to Whispering Winds Outdoors for the tubes? (Round answer to 2 decimal places, e.g. 15.25.)

Maximum purchase price

$enter the maximum purchase price per box in dollars rounded to 2 decimal places per box

Instead of sales of 100,000 boxes, revised estimates show a sales volume of 128,500 boxes. At this new volume, the company must acquire additional equipment, at an annual rental charge of $10,200, to manufacture the tubes. However, this incremental cost would be the only additional fixed cost, even if sales increased to 300,000 boxes. (The 300,000 level is the goal for the third year of production.) Under these circumstances, should Whispering Winds Outdoors make or buy the tubes? Show relevant costs only.

Alternative 1:
Purchase all the tubes		$enter a dollar amount

Alternative 2:
Produce all the tubes		$enter a dollar amount
Plus: rent on new machine		enter a dollar amount
Total annual cost		$enter a total amount

Whispering Winds Outdoors should select an option makebuy the tubes.

The company has the option of making and buying at the same time. What would be your answer to part (c) if this alternative was considered?

Alternative 1:
Purchase all the tubes		$enter a dollar amount

Alternative 2:
Produce all the tubes		$enter a dollar amount
Plus: rent on new machine		enter a dollar amount
Total annual cost		$enter a total amount

Alternative 3:
Produce 100,000 boxes		$enter a dollar amount
Purchase 28,500 boxes		enter a dollar amount
Total annual cost		$enter a total amount

Whispering Winds Outdoors should consider select an alternative Alternative 3Alternative 2Alternative 1 as it is least expensive.