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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%. 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 c
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%. 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 c
1a.Total variable costof producing one box of Chap-Off: $7.20 per box. B. Total variable cost of producing one box of Chap-Off (buying tubes): $9.18 per box. C. Silven Industries should buy the tubes for lower costs.2. Maximum acceptablepurchase pricefor tubes: $1.80 per box.3a. Totalrelevant costof making 120,000 boxes: $1,204,000. Total relevant cost of buying 120,000 boxes: $885,600. Silven should buy, as it's cheaper. B. Buy 60,000 boxes and make 60,000 boxes: Total cost $1,154,400 - best alternative.4.Best alternativeamong options: Make 60,000 boxes and buy 60,000 boxes.How did we arrive at these values?1-a. Thetotal variable costof producing one box of Chap-Off is $9.00 - $1.80 = $7.20 per box.1-b. If the tubes are purchased from the outside supplier, the total variable cost of producing one box of Chap-Off would be:Direct materials: $4.40 * (1 - 0.20) = $3.52Direct labor: $2.80 * (1 - 0.05) = $2.66Manufacturing overhead: $1.80Tube cost: $1.20Total: $3.52 + $2.66 + $1.80 + $1.20 = $9.18 per box.1-c. Silven Industries should buy the tubes since the total variable cost per box would be lower compared to making the tubes.2. The maximumpurchase priceacceptable to Silven Industries can be calculated by comparing the current cost of producing the tubes in-house with the cost of purchasing them. The current cost of producing the tubes in-house is $1.80 per box. Therefore, the maximum purchase price acceptable would be $1.80 per box.3-a. Total relevantcostof making 120,000 boxes:Direct materials: $4.40 * 120,000 = $528,000Direct labor: $2.80 * (1 - 0.05) * 120,000 = $336,000Manufacturing overhead: $1.80 * 120,000 + $96,000 = $300,000Equipment rental: $40,000Total: $528,000 + $336,000 + $300,000 + $40,000 = $1,204,000Total relevant cost of buying 120,000 boxes:Direct materials: $3.52 * 120,000 = $422,400Direct labor: $2.66 * 120,000 = $319,200Tube cost: $1.20 * 120,000 = $144,000Total: $422,400 + $319,200 + $144,000 = $885,6003-b. Based on the above calculations, Silven Industries should buy the boxes since the total relevant cost of buying is lower than the total relevant cost of making.4. To determine thebest alternative, we need to compare the costs of making and buying at different quantities:Make all 120,000 boxes:Total cost: $1,204,000Buy all 120,000 boxes:Total cost: $885,600Make 100,000 boxes and buy 20,000 boxes:Make: $528,000 + $336,000 + $300,000 = $1,164,000Buy: $3.52 * 20,000 + $2.66 * 20,000 + $1.20 * 20,000 = $166,800Total cost: $1,164,000 + $166,800 = $1,330,800Make 60,000 boxes and buy 60,000 boxes:Make: $4.40 * 60,000 + $2.80 * (1 - 0.05) * 60,000 + $1.80 * 60,000 + $96,000 = $682,800Buy: $3.52 * 60,000 + $2.66 * 60,000 + $1.20 * 60,000 = $471,600Total cost: $682,800 + $471,600 = $1,154,400The best alternative is to make 60,000 boxes and buy 60,000 boxes, as it has the lowest total cost among the options provided.learn more aboutpurchase price:brainly.com/question/30096961#SPJ1The complete question goes thus: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...