Beta Co. manufactures and sells a line of winter creams and has decided to diversify in...

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Beta Co. manufactures and sells a line of winter creams and has decided to diversify in order to stabilize sales throughout the year. A natural area for the company to consider is the production of summer sun protection creams. After considerable research, a summer products line has been developed. However, Beta Co.'s CEO has decided to introduce only one of the new products for this coming summer. If the product is a success, further expansion in future years will be initiated. The product selected (called Suncare) is a cream that will be sold in a bottle. The product will be sold to wholesalers in boxes of 24 bottles for €9 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 110,000 boxes of Suncare, the Accounting Department has developed the following cost per box: Direct materials 3.5€ Direct labor 2€ Manufacturing OH Total costs 6.5€ The costs above include costs for producing both the cream and the bottle that contains it. As an alternative to making the bottles, Beta Co. has approached a supplier to discuss the possibility of purchasing the bottles for Suncare. The purchase price of the empty bottles from the supplier would be €1.45 per box of 24 bottles. If Beta Co. accepts the purchase proposal, direct labor and variable manufacturing overhead costs per box of Suncare would be reduced by 20% and direct materials costs would be reduced by 30%. Required: • Should Beta Co. make or buy the bottles? Show calculations to support your answer. • What would be the maximum purchase price acceptable to Beta Co.? Explain. Beta Co. manufactures and sells a line of winter creams and has decided to diversify in order to stabilize sales throughout the year. A natural area for the company to consider is the production of summer sun protection creams. After considerable research, a summer products line has been developed. However, Beta Co.'s CEO has decided to introduce only one of the new products for this coming summer. If the product is a success, further expansion in future years will be initiated. The product selected (called Suncare) is a cream that will be sold in a bottle. The product will be sold to wholesalers in boxes of 24 bottles for €9 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 110,000 boxes of Suncare, the Accounting Department has developed the following cost per box: Direct materials 3.5€ Direct labor 2€ Manufacturing OH Total costs 6.5€ The costs above include costs for producing both the cream and the bottle that contains it. As an alternative to making the bottles, Beta Co. has approached a supplier to discuss the possibility of purchasing the bottles for Suncare. The purchase price of the empty bottles from the supplier would be €1.45 per box of 24 bottles. If Beta Co. accepts the purchase proposal, direct labor and variable manufacturing overhead costs per box of Suncare would be reduced by 20% and direct materials costs would be reduced by 30%. Required: • Should Beta Co. make or buy the bottles? Show calculations to support your answer. • What would be the maximum purchase price acceptable to Beta Co.? Explain.

Answer rating: 100% (QA)

1 MAKE OR BUY DECISION Savings from Purchase Direct Material 3530 105 Direct Labor 220 040 M... View the full answer