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CSecure httpnewconnectmheducstion.com/fiow/connect.htm Help Save&Exit; Submit Check my work 2 lven Industries, which manufectures and sels a highy successful line of summer lotions and insect repellents, has decided to diverslfy In order to staolize sales throughout the year. A natural area for the company to consider ls the production of winter lotions and creais to prevenit dry ard chapped skir After ronsiderable resrarch, n winter products line has hrn developrd Howrvrr, Siven's president has deridrd to intradure only one of the new preducts for this coming winter. If the product is a success, further expansion in future years wi be initiated pont The prodci selected (called Chap-On)s s lip baln that will te sald in a lpstick-lype tue The product will te suld to wholesalers ir bokes ot 24 tubes tor $13 per box. Because of excess capacity, no acicitional fxed manutacturing ovemead costs will be incurred to pradure the product Hawever a $87.500 charge for fixerd manufarturing cwerhend will be ahsnrbed by thr pradurt under the companys absorpion costing system PiLUsg the estimated sales and prodduction of 125,000 s of Chaps-Off, the Accounting Department has develaped the fellawirg manufacturing cost per bok etul cut The costs above relate to making both the lip baim and the tube that contans it. As an aternative to making the tubes for Chap-O Slven hds approached d supplrer to discuss the possibility of buymg ihelubes. The purchase price Dr ?h? supplier's empty tubes would be $1.90 per box ot 24 tubes. It silven Indusries stops making the tubes and buys them trom the outside supplier, its direct Inhn?and vnnahin manufacturing werhend rasts prr box cfChap-Off would be redur hy iON, and its drer1 mm rals rasts wnuld be reduced by 20%. Required: 1·it Silven buys its tuoestrom the outside suooier, how much ot its own Chap-Om manufacturing costs per box will it be able to avoid? (Hint. You nrnd Tn 5eparate tne manufarturing nvmhend of $2 ?? per hnx that is shnwn nDOwe intn its variable and fixed compon-nts to derve the corect answer. 2 Wha Is the financlal advantage (disadvantagc) perbox of Chap-Off If Slven buys Its tubes from the outslde suoplicr orn lhe tunsid? suppliet? What is the financal advartageldisadvanlege r? tutal Inol per box) f Silveri buys 125,000 boxes of tubes 4. Should Siven Industries make or buy the tubes? What is the maximum price that Siven shul br willing to pay the nutsirde suppller for a hrnx of 4 tihes 6. Ins ead of sales of 125,000 boxes f tubes, revised estimates shew a sales volune of 155,000 boxes eftubes. Al this higher sales volume, Slven would nced to rent cxtra cqulpmant at a cost of S50,000 per ycar to makc the addltional 30,000 boxcs of tuocs. Assurring that the outside sulier wall nol atcept ar arder for less than 155.000 bxes of tubes, what is the fitarrcial atvaritay (disadvantage: in total (not per ???)T Silven ouys 155.000 boxes of tubes trom the outside supplier?Given this new intonmation. 7. Refer to the data in (5) above. Assue that the outside supplier will accept an orcer ef any size for the tubes a a price of S1.90 per oox, How many boxcs of tubes should Silven make? How many boxes oftubes should i buy from the cutalde supplier? Ask ma angthingExplanation / Answer
1. It would be able to avoid $1.76 per boc of chop-off .
Working:
2.
3.
Financial disadvantage if the tubes are bought from the supplier = 125,000 x 0.14 = $17,500
4.
Silven Industries should make the tubes.
5.
Tha maximum price tht Silver would be will to pay the outside supplies is $1.76
Per box Saving % Amount Direct material 5.60 20% 1.12 Direct labor 4.00 10% 0.40 Variable manufactuing overhead * 2.40 10% 0.24 Total 12.00 1.76 Manufacturing overhead per box 2.40 No.of boxes 125000 Total Manufacturing overhead 300000 Fixed manufacturing overhead 87500 Variable manufacturing overhead 212500 Variable overhead per box * 1.70