| ignment 11-3 week 11 Problems Help Save & Exit Submit Saved Check my work Prob
ID: 2585514 • Letter: #
Question
| ignment 11-3 week 11 Problems Help Save & Exit Submit Saved Check my work Problem 12-23 Make or Buy Decision [LO12-3] 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. ok ces 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 S12 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a S110,000 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 110,000 boxes of Chap-Off, the Accounting Department has developed the following manufacturing cost per box: Direct material Direct labor Manufacturing overhead Total cost $ 5.00 2.10 $10.50 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,Explanation / Answer
Req 1: Total Manufacturing overheads per box $ 2.10 per box Less: Fixed Manufacturing overheads per box $1.00 per box ($110,000 allocated overheads for 110,000 box) VariableManufacturing Overheads per box $ 1.10 per box Now, Variable Manufacturing Cost for manufacturing the tube and product inhouse: Direct material per box $5 per box Direct labour per box $3.40 per box Variable manufacturing overheads $1.10 per box Total Manufacturing cost $9.50 per box Variable manufacturing cost of manufacturing the product and buring the tube from supplier: Direct material per box(5-20%) $4 per box Direct Labour per box(3.40-10%) $3.06 per box Variable manufacturing overheads(1.10-10%) $0.99 per box Total Manufacturing cost $8.05 per box Therefore, Own manufacturing cost that could be able to avoid is $ 1.45 per box (i.e. 9.50-8.05) Manufacturing Cost avoided per box of chap Off $1.45 per box Req2: Financial Advantage /Disadvantage of buying the tubes: Total cost when tubes are bought from outside supplier Own Manufacturing cost per box $8.05 Add: Cost of tubes from supplier per box $1.65 Total Cost per box $9.70 Less: Total Manufacturing cost when produce in house $9.50 Net Financial Disadvantage $0.20 per box Net Financial Disadvantage $0.20 per box Req 3: Total Financial Disadvantage of buying 110,000 boxes from Supplier Number of boxes to be produced 110,000 Financial Disadvantage per box $0.20 Total Financial Disadvantage in $ 22000 (110,000 boxes@0.20 per box) Total Financial Disadvantage in $ 22,000 Req 4: Silven Industries should make the tubes Make the tubes
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.