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Safari File Edit View History Bookmarks Window Help # O A z .0 a -LO, Tue 4:31 PM Lynette Disla a E ezto.mheducation.com DO 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 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $84,000 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 140,000 boxes of Chap-Off, the Accounting Department has developed the following cost per box: Direct materials Direct labor Manufacturing overhead $3.70 1.80 1.20 Total cost $6.70 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 na Disla ...oc.docx DEC 8 3DExplanation / Answer
1.(a) Total boxes = 140000
Absorbed fixed manufacturing overhead = $84000
Fixed manufacturing overhead per box = $84000/140000
= $0.60
Variable manufacturing overhead per box = 1.20-0.60 = 0.60
Statement showing varible cost per box
(b)
Statement showing varible cost per box
(c) Variable cost of buying the tubes is higher than variable cost of making the tubes therefore tubes should be manufactured instead of buying.
2 savings in cost due to purchase = 3.70x25% + 2.40x10%
= $1.165
Maximum purchase price payable will $1.165
3.(a) Calculation of total relevant cost
(b) Company should purchase tubes
4 Relevant cost for further 30000 boxes:
If purchased = 30000x 6.285 = 188550
If manufactured = 30000x6.10 + 48000 = 231000
Therefore company should manufacture first 140000 boxes and remainig should be purchased
Direct material 3.70 Direct labour 1.80 Variable manufacturing overhead 0.60 Total variable cost per box 6.10Related Questions
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