ezto.mheduc Odu Main view Silven Industries, which manufactures and sells a high

Question

ezto.mheduc Odu Main view 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 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 6 tubes for $7.20 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $100,000 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 Direct labor $3.60 1.00 1.40 Total cost $6.00 The costs above include costs for producing both the lip balm and the tube that contains it. As an altenative 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 $1.10 per box of 6 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 calculations. Round your answer to 2 decimal places.) variable cost per box variable cost of producing one box of Chap-Off. (Do not round intermediate o your answer to 2 decimal places.) t the tubes for the Chap-Off are purchased from the outside supplier, calculate the total alculations. Round Tatal variable cost per box

Explanation / Answer

1.a. Computation of Total Variable Cost of Producing One Box Particular Cost/box Direct Material $3.60 Direct Labour $1.00 Manufacturing Overhead $1.40 Total Variable Cost/box $6.00 1.b. Computation of Variable cost of Box , if tubes Purchased from Outside Particular Cost/box Purchasing Cost of Tube $1.10 Direct Material ( $3.60-$3.60*20/100) $2.88 Direct Labour ($1-$1*10/100) $0.90 Manufacturing Overhead ( $1.40-$1.40*10/100) $1.26 Total Variable Cost/box $6.14

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