ezto.mheducation.com chapter 10 homework question 20.00 points Silven Industries
ID: 2530326 • Letter: E
Question
ezto.mheducation.com chapter 10 homework question 20.00 points 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 ip balm that will be sold in a lipstick-type tube. The product will be sold to wholesalers in boxes of 16 tubes for $6.90 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $100,000 charge for foxed 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 folowing cost per box: Direct materials Direct labor Manufacturing overhead S2.60 1.00 1.80 Total cost S5.40 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 $0.80 per box of 16 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 20%. 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.) l variable cost per box 1b. Assume that the tubes for the Chap-Off are purchased from the outside supplier, calculate the total variable cost of producing one box of Chap-Off. (Do not round intermediate calculations. Round your answer to 2 decimal places.) I variable cost per boxExplanation / Answer
Solution:-
Fixed manufacturing O/H per box = 100000/100000 = 1 per box
Variable manufacturing O/H per box = 1.80-1 = 0.80
(1a) Total variable cost per box :-
Material Cost
2.60
Direct labour
1
Variable Manufacturing O/H
0.80
Total variable cost per box
4.40
(1b) Total Variable cost of producing 1 Box:-
Purchase price of empty tupe per box
0.80
Material Cost (2.60*80%)
2.08
Direct labour (1*90%)
0.90
Variable Manufacturing O/H (0.80*90%)
0.72
Total variable cost per box
4.50
(1c) Silven Industries should MAKE the tubes due to benefit of 4.50-4.40 = 0.10per box
(2) Maximum Purchase price acceptable:-
Total variable cost per box (If tubes are manufacture)= 4.40
Total variable cost per box without tubes (If tubes are purchase) = 3.70
Maximum Purchase price of tubes per box = 4.40-3.70 = 0.70
(3a)
Make
Buy
Material Cost
(2.60*115000) =299000
(2.08*115000) = 239200
Labour Cost
(1*115000) = 115000
(0.90*115000) = 103500
Variable manufacturing O/H
(0.80*115000) = 92000
(0.72*115000) = 82800
Purchase Price of tubes
-------------------------
(0.80*115000) = 92000
Annual Rent of Additional Equipment
22000
-----------------------------
Total cost
528000
517500
(3b) Company should BUY the tubes due to benefit of 528000-517500 = 10500
(4) Make 100000 Box and Buy 15000 Box is the best option
Material Cost
2.60
Direct labour
1
Variable Manufacturing O/H
0.80
Total variable cost per box
4.40
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