The product selected (called Chap-Off) is a lip balm that will be sold in a lips
ID: 2363849 • Letter: T
Question
The product selected (called Chap-Off) is a lip balm that will be sold in a lipstick-type 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 materials $3.60
Direct labor 2.00
Manufacturing overhead 1.40
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 tubes, 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 materials costs would be reduced by 25%.
Explanation / Answer
Total variable cost: Here we have to calculate the totalVariable cost of one box of Chap-off if the tubes are purchased from the outside supplier. Here the variable cost include Direct material, Direct labor, Manufacturing overhead. Here according to the given information the Direct labor and the manufacturing costs per box of Chap-offwould be reduced by 10% and the Direct material costs would be reduced by 25%. So the toatl variable cost can be calculated as follows; Direct material cost = $3.60 - 25% of 3.60 = 3.60 - 0.9 Direct material cost per box = $2.7 Direct labor cost = $2.00 - 10% of $2 = 2 - 0.2 Direct labor cost per box = $1.8 Manufacturing overhead = 1.40 - 10% of 1.40 = 1.40 - 0.14 Manufacturing overhead per box = $1.26 So total variable cost per Box of Chap-off = $2.7 + 1.8 + 1.26 So total variable cost = $5.76 Here we have to calculate the totalVariable cost of one box of Chap-off if the tubes are purchased from the outside supplier. Here the variable cost include Direct material, Direct labor, Manufacturing overhead. Here according to the given information the Direct labor and the manufacturing costs per box of Chap-offwould be reduced by 10% and the Direct material costs would be reduced by 25%. So the toatl variable cost can be calculated as follows; Direct material cost = $3.60 - 25% of 3.60 = 3.60 - 0.9 Direct material cost per box = $2.7 Direct labor cost = $2.00 - 10% of $2 = 2 - 0.2 Direct labor cost per box = $1.8 Manufacturing overhead = 1.40 - 10% of 1.40 = 1.40 - 0.14 Manufacturing overhead per box = $1.26 So total variable cost per Box of Chap-off = $2.7 + 1.8 + 1.26 So total variable cost = $5.76Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.