The company can buy the tubes for the balm from a cosmetics

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Reference no: EM13588812

The Lotion Co., which produces and sells to wholesalers summer lotions, wants to now produce winter products. It will produce a lip balm to be sold in a small tube. It will be sold to wholesalers in boxes of 24 tubes for $8.00 per box. Due to available capacity, no extra fixed charges will be incurred, but a $100,000 fixed charge will be absorbed by the product to allocate a fair share of the company's present fixed costs to the new product.

The following costs reflect an estimated sales and production of 100,000 boxes:

DM $3.00/box

DL 2.00/box

Total OH 1.50/box

$6.50/boxa

The company can buy the tubes for the balm from a cosmetics manufacturer for $.90/box. If the Lotion Co. does buy the tubes (from the outside manufacturer), DL and VO costs would go down by 10% and the DM costs would go down by 20%.

Should Lotion Co. make or buy the tubes?

Reference no: EM13588812

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