Homework Help is Here – Start Your Trial Now!
Business
Accounting
8. What qualitative factors should Silven Industries consider in this sourcing decision? Silven Industries, which manufactures and sells 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, Silven developed a new lip balm called Chap-Off that is 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 Chap-Off. However, a $90,000 charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system. Using estimated sales and production of 100,000 boxes of Chap-Off, the Accounting Department developed the following manufacturing cost per box: Page 601 Direct material Direct labor $3.60 2.00 Manufacturing overhead Total cost 1.40 $7.00 The costs above include the lip balm and the tube containing it. As an alternative to making the tubes for Chap-Off, Silven is considering buying them from an outside supplier for $1.35 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 decrease by 10% and its direct materials costs would drop by 25%.

8. What qualitative factors should Silven Industries consider in this sourcing decision? Silven Industries, which manufactures and sells 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, Silven developed a new lip balm called Chap-Off that is 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 Chap-Off. However, a $90,000 charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system. Using estimated sales and production of 100,000 boxes of Chap-Off, the Accounting Department developed the following manufacturing cost per box: Page 601 Direct material Direct labor $3.60 2.00 Manufacturing overhead Total cost 1.40 $7.00 The costs above include the lip balm and the tube containing it. As an alternative to making the tubes for Chap-Off, Silven is considering buying them from an outside supplier for $1.35 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 decrease by 10% and its direct materials costs would drop by 25%.

Principles of Cost Accounting
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter10: Cost Analysis For Management Decision Making
Section: Chapter Questions
Problem 14P
See similar textbooks
icon
Related questions
Question
8. What qualitative factors should Silven Industries consider in this sourcing decision?
Transcribed Image Text:8. What qualitative factors should Silven Industries consider in this sourcing decision?
Silven Industries, which manufactures and sells 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, Silven developed a new lip balm called Chap-Off that is 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 Chap-Off. However, a $90,000 charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system. Using estimated sales and production of 100,000 boxes of Chap-Off, the Accounting Department developed the following manufacturing cost per box: Page 601 Direct material Direct labor $3.60 2.00 Manufacturing overhead Total cost 1.40 $7.00 The costs above include the lip balm and the tube containing it. As an alternative to making the tubes for Chap-Off, Silven is considering buying them from an outside supplier for $1.35 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 decrease by 10% and its direct materials costs would drop by 25%.
Transcribed Image Text:Silven Industries, which manufactures and sells 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, Silven developed a new lip balm called Chap-Off that is 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 Chap-Off. However, a $90,000 charge for fixed manufacturing overhead will be absorbed by the product under the company's absorption costing system. Using estimated sales and production of 100,000 boxes of Chap-Off, the Accounting Department developed the following manufacturing cost per box: Page 601 Direct material Direct labor $3.60 2.00 Manufacturing overhead Total cost 1.40 $7.00 The costs above include the lip balm and the tube containing it. As an alternative to making the tubes for Chap-Off, Silven is considering buying them from an outside supplier for $1.35 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 decrease by 10% and its direct materials costs would drop by 25%.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Principles of Cost Accounting
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS