Question

Unilever produces and sells a summer lotion. In winter the capacity remains idle. Therefore, the company is thinking to lunch a winter lotion in order to stabilize sales throughout the year. The winter lotion would be sold in a tube. A box contains 24 tubes which could be sold for Rs 1000 per box. Because of the available capacity, no additional fixed charges will be incurred to produce the product . However , a Rs 400,000 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 normal volume of production is 10,000 boxes of winter lotion. The costing department has developed the following costs per box:

Rs. 250 Direct material
Rs. 380 Direct labor
Rs. 120 Total overhead

Unilever is going to see the possibility of buying the tubes for winter lotion from the outside supplier at Rs 2.5 per tube. If it does so there will be idle physical resources which could be rented out. The monthly rent will be Rs 18,000 for six months. If Unilever purchases needed tube from outside, it is estimated that direct material costs would be reduced by 10 percent and direct labor and variable overhead costs would be reduced by five percent.
Required:
1. Should the Unilever make or buy the tubes? Support your answer with necessary calculations.
Ans: Make the product as cost is saved by Rs 12,000.​

Answer 1

Answer:

Make the product as cost is saved by Rs 12,000.

Explanation:

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