Eurythmics - Sweet Dreams ( x chapter 10 homework CO Not Secure ezto.mheducation
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Eurythmics - Sweet Dreams ( x chapter 10 homework CO Not Secure ezto.mheducation.com/hm.tpx Silven Industries, which manufactures and sells a highly successful line of 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, a winter products line has been developed, However, Silven'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. product will be sold to wholesalers in boxes of 10 tubes for $8.00 per box. Because of excess capacity, no additional foxed manufacturing overhead costs will be incurred to produce the product Howeyer, a S120,000 costing system. The product selected (called Chap-Off) is a lip balm that will be sold in a lipstick-type tube. The Using the estimated sales and production of 100,000 boxes of Chap-Off, the Accounting Department s developed the following cost per box: Direct materials Direct labor Manufacturing overhead $3.00 2.00 1.80 Total cost $6.80 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 $0.90 per box of 10 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 by20%. Required 1a. Calculate the total variable cost of producing one box of Chap-Off. (Do not round intermediate ealculations. Round your answer to 2 decimal places.) l variable per box are purchased from the outside supplier, calculato the total 1b. Assume that the tubes for the Chap-Off variable cost of producing one box of Chap-Off, (Do not round intermediate calculations. Round your answer to 2 decimal places.) per box variable costExplanation / Answer
Answers
A
Fixed Manuafcturing Overhead
$ 120,000.00
B
No. of boxes
100000
C=A/B
Fixed Manufacturing Overhead per box
$ 1.20
D
Total Manufacturing Overhead per box given
$ 1.80
E=D-C
Variable manufacturing Overhead per box
$ 0.60
A
Direct Material
$ 3.00
B
Direct Labor
$ 2.00
C
Variable manufacturing Overhead per box
$ 0.60
D=A+B+C
Total Variable cost per box
$ 5.60
A
Purchase cost
$ 0.90
B = $3 - 20%
Direct Material
$ 2.40
C = $2 - 10%
Direct Labor
$ 1.80
D = $0.6 - 10%
Variable manufacturing Overhead per box
$ 0.54
E = A+B+C+D
Total Variable cost per box
$ 5.64
Answer: MAKE, because Variable cost per box of making is less than variable cost per box of buying.
A
Direct Material
$ 2.40
B
Direct Labor
$ 1.80
C
Variable manufacturing Overhead per box
$ 0.54
D=A+B+C
Total VC before including purchase cost
$ 4.74
E
Total VC per box if produced
$ 5.60
F = E - D
Maximum Purchase price per box
$ 0.86
Making
Buying
A
Total Variable cost per box
$ 5.60
$ 5.64
B
No. of boxes
128000
128000
C=AxB
Total Variable cost
$ 716,800.00
$ 721,920.00
D
Additional fixed cost of equipment
$ 30,000.00
E=C+D
Total Relevant Cost
$ 746,800.00
$ 721,920.00
Answer: BUY, because total relevant cost under ‘buying’ is LESS than total relevant cost under ‘making’ alternative.
----Since upto 100,000 units of boxes, relevant cost (variable cost) per box of making was less than buying cost, it is profitable to produce or make 100,000 boxes and buy the remaining 28,000 boxes.
---Hence, correct answer Option 3: Make 100,000, buy 28,000
---Under this method, cost will be lowest as:
Making
Buying
Total
A
Total Variable cost per box
5.6
5.64
B
No. of boxes
100000
28000
128000
C=AxB
Total Variable cost
$ 560,000.00
$ 157,920.00
$ 717,920.00
D
Additional fixed cost of equipment
$ -
$ -
E=C+D
Total cost
$ 560,000.00
$ 157,920.00
$ 717,920.00
A
Fixed Manuafcturing Overhead
$ 120,000.00
B
No. of boxes
100000
C=A/B
Fixed Manufacturing Overhead per box
$ 1.20
D
Total Manufacturing Overhead per box given
$ 1.80
E=D-C
Variable manufacturing Overhead per box
$ 0.60
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