The RadiantSkin Labs, which produces and sells to wholesalers a highly successful line of summer lotions and insects repellents, has decided to diversify 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, the company developed a winter product line.

However, because of the conservative nature of the company management, the company's president has decided to introduce only one of the new products for this coming winter. If the product is a success, further expansion in future years will be initiated.

The product selected is a lip balm that will be sold in a lipstick-type tube. The product will be manufactured in boxes for R15 per box. Because of the available capacity, no additional fixed cost will be absorbed by the product.

A new machine of R250,000 will be installed to produce the new product. It has an estimated life of 5 years but can get R75,000 as salvage value if sold at the end of 4th year.

The accounting department has estimated the following four yearly demands for the product.

Year	1	2	3	4
Quantity demand	20,000	25,000	30,000	32,000

RadiantSkin Labs has approached a cosmetic manufacturer to discuss the possibility of purchasing the ready material to be placed in the empty lipstick-type tubes. The purchase price of the material from the cosmetic manufacturer would be R13 per box. It is also estimated that the cost of the empty tubes and filling cost would be R4 per box. The company expects a 10% return from this venture.

Task:

Should the RadiantSkin Labs make or buy the tubes? Show calculations to support your answer