Silvern Industries, which manufactures and sells a highly successful line of sum
ID: 2456131 • Letter: S
Question
Silvern 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-Oft) 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 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:Explanation / Answer
Answer 1
if we make then
Decession :- Silven Industries should make the tubes because the net income is $10,000 while buying would result in the loss of $1,000.
Answer 2
The maximum purchase price acceptable to Silven Industries is $1.24 per boxbecause it will result in the same net income if Silven Industries decides to makethe tubes
Answer c
Cost per box under make => 3.6 +2 +1.4 +90000 => 7per box +90000
Cost per box under buy => 2.7+1.8+1.26+1.35 +90000 => 7.11 per box +90000
now if sales at 120000
under make => 120000 *7 +90000+40000 => $970000
under buy => 120000*7.11 + 90000 => $943200
Under this its better to buy the boxes from outside supplier due to profit of $16800 whereas if make then loss of ($10000)
Answer 4
Answer will reamin same as 3, its better to bur because of net profit of $ 16800
Answer 5
Silven Industries should consider the quality of the tubes produced by the outside supplier, the delivery time, and the capacity of the outside supplier as to whether it is comparable with the quality of the tubes which are produced by Silven Industries.Moreover, if Silven Industries decides to make the tubes, they need to consider the direct materials cost, the efficiency of the direct labor, the direct labor cost, and the variable manufacturing expenses.
PARTICULARS MAKE BUY SALES 800000 800000 MATERIAL 360000 270000 DIRECT LABOUR 200000 180000 MANUFACTURING OVERHEAD 140000 126000 FIXED OVERHEAD 90000 90000 PURCHASE COST - 135000 PROFIT /(LOSS) 10000 (1000)Related Questions
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