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 24 tubes for $8.00 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 Direct labor $3.60 2.00 1.40 Manufacturing overhead 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%. 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.) Total variable cost per box
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 24 tubes for $8.00 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 Direct labor $3.60 2.00 1.40 Manufacturing overhead 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%. 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.) Total variable cost per box
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I would like some help answering this accounting problem. Screen shots are included. Thank you.
Transcribed Image Text: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 24 tubes for $8.00 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
Direct labor
$3.60
2.00
1.40
Manufacturing overhead
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%.
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.)
Total variable cost
per box
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