ch6_hw_qa4_part5_sh Silven Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided todiversify in order to stabilize sales throughout the year. A natural area for the company to consider is the production of winter lotionsand 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 onlyone 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 inboxes of 24 tubes for $10 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred toproduce the product. However, a $96,000 charge for fixed manufacturing overhead will be absorbed by the product under thecompany's absorption costing system.Using the estimated sales and production of 120,000 boxes of Chap-Off, the Accounting Department has developed the followingmanufacturing cost per box:Direct material$4.402.80Direct laborManufacturing overhead1.80Total cost$9.00The 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 tubeswould be $1.20 per box of 24 tubes. If Silven Industries stops making the tubes and buys them from the outside supplier, its directlabor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 5% and its direct materials costs would bereduced by 20%.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 $1.80 per box that is shown above into its variable and fixed components toderive the correct answer.)2. What is the financial advantage (disadvantage) per box of Chap-Off if Silven buys its tubes from the outside supplier?3. What is the financial advantage (disadvantage) in total (not per box) if Silven buys 120,000 boxes of tubes from the outside supplier?4. Should Silven Industries make or buy the tubes?5. What is the maximum price that Silven should be willing to pay the outside supplier for a box of 24 tubes?6. Instead of sales of 120,000 boxes of tubes, revised estimates show a sales volume of 144,000 boxes of tubes. At this higher salesvolume, Silven would need to rent extra equipment at a cost of $44,000 per year to make the additional 24,000 boxes of tubes.Assuming that the outside supplier will not accept an order for less than 144,000 boxes of tubes, what is the financial advantage(disadvantage) in total (not per box) if Silven buys 144,000 boxes of tubes from the outside supplier? Given this new information, shouldSilven Industries make or buy the tubes?7. Refer to the data in (6) above. Assume that the outside supplier will accept an order of any size for the tubes at a price of $1.20 perbox. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier?Complete this question by entering your answers in the tabs below. Complete this question by entering your answers in the tabs below.Req 1Req 2Req 3Reg 4Req 5Req 6Req 7What is the maximum price that Silven should be willing to pay the outside supplier for a box of 24 tubes? (Do not roundintermediate calculations. Round your answer to 2 decimal places.)Maximum priceper box

When a business to choose between alternatives for doing the business or taking a decision, then…

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 $10 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $96,000 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 120,000 boxes of Chap-Off, the Accounting Department has developed the following manufacturing cost per box: Direct material $4.40 Direct labor 2.80 Manufacturing overhead 1.80 Total cost $9.00 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 $1.20 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 5% and its direct materials costs would be reduced by 20%.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q