The product selected (called Chap-Off) is a lip balm that will be sold in a lipstick like tube. The product will be sold to wholesalers in boxes of…

The product selected (called Chap-Off) is a lip balm that will be sold in a lipstick like 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 $90,000 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 100,000 boxes of Chap-Off, the Accounting Department has developed the following cost per box:                        Direct material                         $3.60                        Direct labor                               2.00                        Manufacturing overhead           1.40                        Total cost                                $7.00The costs above include costs for producing both the lip balm and the tube that contains it.  As an alternative to making the tube, 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 material costs would be reduced by 25%. Should Silven Industries make or buy the tubes? Use calculations to prove answer

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