Check my work Silven Industries, which manufactures and sells a highly successfu

Question

Check my work 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. 12.5 points 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. Skipped 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 $135,000 charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system. eBook Print ReferencesUsing the estimated sales and production of 135,000 boxes of Chap-Off, the Accounting Department has developed the following manufacturing cost per box: Direct material Direct labor Manufacturing overhead Total cost $3.50 80 1.50 $6.80 The costs above relate to making both the lip balm and the tube that contains it. As an alternative to making the tubes for Chap-Off, Silven has approached a supplier to discuss the possibility of buying the tubes. The purchase price of the supplier's empty tubes would be $1.50 per box of 24 tubes. If Silven Industries stops making the tubes and buys them from the outside supplier, its direct labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 10% and its direct materials costs would be reduced by 30%. Required 1. If Silven buys its tubes from the outside supplier, how much of its own Chap-Off manufacturing costs per box will it be able to avoid? (Hint: You need to separate the manufacturing overhead of $1.50 per box that is shown above into its variable and fixed components to derive the correct answer.) 2, what is thR financial advantadR (disadvantade) ner box f Chan-Off if Silven buvs its tubes from th tsid sunnlier?

Explanation / Answer

1. Avoidable manufacturing costs per box of Chap-Off: $1.28

Total manufacturing overheads = $1.50 per box

Fixed manufacturing overheads = $135000 / 135000 = $1 per box

Variable manufacturing overheads = $1.50 - $1.00 = $0.50 per box

The fixed manufacturing costs are unavoidable as they are allocated costs and would be incurred irrespective of whether the tubes are made or bought.

2. Financial disadvantage $0.22 per box

3. Financial disadvantage $29700

Calculations:

4. Make

Silven Industries should make the tubes since the cost of making is lower than that of buying.

Please note that per Chegg guidelines, 4 sub-parts have been answered. Please post the remaining separately. Thank you.

Per box $ Direct materials (30% of $3.50) 1.05 Direct labor (10% of $1.80) 0.18 Variabe manufacturing overheads 0.05 (10% of $0.50) Total avoidable costs $ 1.28

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.