ezto mheducation.com Chapter 10 Homework Silven Industries, which manufactures a
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ezto mheducation.com Chapter 10 Homework Silven Industries, which manufactures and sells a highly successful line of summer lotions and insect repelilents, 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 to introduce only one of the new products for this coming winter. Iif the product is a success, selected (called Chap-Off) is a lip balm that will be sold in a lipstick-type tube. The further expansion in future years wil be initiated product will additional fixed manufacturing overhead costs will be incurred to produce the product excess capacity, no Hdwever, a $110,000 be sold to wholesalers in boxes of 12 tubes for $8.50 per box. Because of charge for fxed 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: Direct materials Direct labor Manufacturing overhead $4.80 1.00 1.40 Total cost $7.20 The costs above include costs for producing both the lip balm and the tube that contains it. As an aternative to making the tubes, liven 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 wouid be $1.20 per box of 12 tbe·lf Siven Industries accepts the purchase proposal, direct labor and variable manufacturing by20%. verhead costs per box of Chap-Off would be reduced by 10% and drect materials costs would be reduced Required: a Calcuiate the total variable cost of producing one box of Chap-Off. (Do not round intermediate calculations. Round your answer to 2 decimal places.) per box tb. 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 to 2 decimal places) esc :Explanation / Answer
Answer 1-a. Variable Cost per Box Direct Materials 4.80 Direct Labor 1.00 Variable MOH 0.30 Total Variable Cost per Box 6.10 Total Manufacturing Overhead = $1.40 X 100,000 Boxes = $140,000 Variable MOH = $140,000 - $110,000 = $30,000 Variable MOH per Box = $30,000 / 100,000 Boxes = $0.30 per Box Answer 1-b. Variable Cost per Box Chap Off is purchased from Outside Supplier Direct Materials - $4.80 X 80% 3.84 Direct Labor - $1 * 90% 0.90 Variable MOH - $0.30 X 90% 0.27 Cost of Tube from Outside 1.20 Total Variable Cost per Box 6.21 Answer 1-c. The company should Make the tube as there will be saving of $0.11 per Box. Answer 2. Maximum Purchase Price Acceptable Per Box = $6.10 - ($3.84 + $0.90 + $0.27) Maximum Purchase Price Acceptable Per Box = $1.09 Answer 3-a. Making Buying Variable Cost 701,500 714,150 ($6.10 X 115,000 Boxes) ($6.21 X 115,000 Boxes) Rent - Additional Equipment 32,000 Total Cost 733,500 714,150 Answer 3-b. The company should buy the tube. Answer 4. Alternative 1 Alternative 2 Alternative 3 Alternative 4 Make (In Boxes) 115,000 - 100,000 32,000 Buy - 115,000 15,000 32,000 Variable Cost of Making 6.10 6.10 6.10 6.10 Variable Cost of Buy 6.21 6.21 6.21 6.21 Variable Cost of making 701,500 - 610,000 195,200 Variable Cost of Buy - 714,150 93,150 198,720 Rent - Additional Equipment 52,000 - - - Total Cost 868,512 829,162 818,162 457,932 The Best Alternative in which mimimum Cost - Make - Alternative 3 -100,000 Boxes & Buy - 15,000 Boxes (Alternative 4 is not relevant here as total tubes manufactured o produced less than the total demand of 115,000 boxes)
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