10. value: 3.00 points Silven Industries, which manufactures and sells a highly
ID: 2582662 • Letter: 1
Question
10.
value:
3.00 points
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 8 tubes for $6.10 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $50,000 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:
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 $0.80 per box of 8 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 20%.
Calculate the total variable cost of producing one box of Chap-Off. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Assume that the tubes for the Chap-Off are purchased from the outside supplier, calculate the total variable cost of producing one box of Chap-Off. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What would be the maximum purchase price acceptable to Silven Industries? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Instead of sales of 100,000 boxes, revised estimates show a sales volume of 123,000 boxes. At this new volume, additional equipment must be acquired to manufacture the tubes at an annual rental of $20,000. Assume that the outside supplier will not accept an order for less than 123,000 boxes.
Calculate the total relevant cost of making 123,000 boxes and total relevant cost of buying 123,000 boxes. (Do not round intermediate calculations.)
Refer to the data in (3) above. Assume that the outside supplier will accept an order of any size for the tubes at $0.80 per box. Which of these is the best alternative?
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 8 tubes for $6.10 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $50,000 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:
Explanation / Answer
Solution:-
1.a Variable Cost per box:-
Direct Material = $2.80
Direct Labour:- $ 1
Manufacturing overhead = $1
Total Variable cost = $4.80
1.b If Tube Purchased from outside:=-
Varibale Cost:-
Tube cost = 0.80
Direct Material = (2.80- 2.80*20/100) = $2.24
Direct Labour = (1 - 1*1/100) = 0.90
Manufcaturing Overhead:- (1 - 1*1/100) = 0.90
Total Variable Cost = $4.84
1.c As per the above calculation, it seems that varibale cost in case of purchase of tube is more , hence it is better to make the tube by own.
2. Maximum Purchase price that can make us to accept the offer must be equal to the savings in our cost, that is:-
Saving in Cost of Direct material = 2.80*20% = $ 0.56
Saving in Cost of Direct Labour = 1*10% = $ 0.10
Saving in Cost of Manufacturing Overhead = 1*10% = $ 0.10
Total Savings = $0.76
So the price of tube shoud not be more than $ 0.76 per box.
3.a Total Relevent Costing for Making 1,23,000 boxes:-
Machine Rent = 20000
Direct Material = (2.80*123000) = $3,44,400
Direct Labour = (1*123000) = $ 1,23,000
Manufacturing Overhead:- (1*123000) = $ 1,23,000
Total Cost = 6,10,400
Total Cost for Buying 1,23,000;-
Tube Cost (0.80*123000) = $98,400
Direct Material = (2.24*123000) = $2,75,520
Direct Labour = (0.9*123000) = $ 1,10,700
Manufacturing Overhead:- (0.9*123000) = $ 1,10,700
Total Varible Cost = $5,95,320
3.b Better to buy the tubes
4. Cost of each of the following:-
a If make all 123000 boxes:- $ 6,10,400
b. Buy all 123000 boxes:- 5,95,320
c. Make 100000 and buy 23000 boxes:- (100000*4.80 + 23000*4.84) = 5,91,320
Better to Make 100000 boxes and buy 23000 boxes.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.