polish. Come-clean Corporation produces a variety of cleaning compounds and solu
ID: 2579225 • Letter: P
Question
polish. Come-clean Corporation produces a variety of cleaning compounds and solutions tor both Industrial and household use. While most of ns products are processed Independently, a rew are related, such as the company's Gnt 337 and its Sparkle slver Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.60 a pound to make, and it has a selling pnice of ST.20 a pound. A small portion of the annual production of Grit 337 is retained in the factory for further processing. It is combined with several other ingred ents to form a paste that is marketed as Sparkle slver pollsh. The sllver polish sells for $5.00 per jar This further processing requires one-fourth pound of Grit 337 per jar of silver polish. The additional direct costs invelved in the processing of a jar of silver pclish are Other ingredients Direct labor 0.55 1.36 S 1.91 Total direct cost Overhead costs associated with processing the silver polish are Variable manufacturing ovarhead cost Fixed manufacturing overhead cost (par manth) Production supervisor Depreciation of mixing equipmant 25% of direct labor cost S 3200 S 1.400 The production supervisor has no duties cther than to oversee production of the silver polish. The mixing equipment is special-purpose equipment acquired specifically to produce the silver polish. Its resale value is negligible and it does not wear out through use Direct labor is a variable cost at Come-clean Corporation Advertising costs for the silver polish total $3.800 per month. Variable selling costs associated with the silver polish are 5% of sales. Due to a recent decline in the demand for silver polish, the company is wondering whether its continued production is advisable. The sales manager feels that it would be more proable to sell all of the Grit 337 as a cleaning powder Required 1. What is the incremental contribution margin per jar from further processing of Grit 337 into silver polish? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 2. What is the minimum number of jars of silver polish that must be sold each month to justity the continued processing of Gnit 337 into siver polish (Round your intermediate calculations to 2 decimal places.)Explanation / Answer
In this question there are are 2 products
1. Grid-337
2. Silver Polish or Sparkle Silver Polish
Silver Polish is derived , if the Grid-337 is further processed.
Manufacturing cost of Grid-337 = $1.6 per Pound (given in the question)
Selling Price of the Grid-337 = $7.2 per Pound (given in the question)
Selling Price of Silver Polish per Jar = $5.00
Manu Facturing cost:
Grid-337 (0.25 pound is used per jar) = 0.25*$1.6 = $0.40
Other Ingridients = $0.55
Direct Labour = $1.36
Variable over heads per jar (25% of Direct Labour)=$0.34 ($1.36*0.25 = $0.34)
Fixed Over Head in total= ($3200+$1400) = $4600
1.Production Supervisor Salary = $3200
2.Depriciation of Mixing Machine= $1400
Break Even Point = Fixed Cost / (Selling Price - Variable cost)
Break Even Sales units = $4600 / ($5 - $2.65) = 1957 units
{ Variable Cost for the Silver Polish is calculated, by adding all the variable costs in the Manufacturing costs of the Siver Polish }
Total Sales at Break Even Point in value = $9785 ($5.00 * 1957 units)
Total Variable cost at Break Even Point = $5186 ($2.65 * 1957 units)
Contibution per unit at break sales = $2.35 ($5.00 - $2.65)
1. Incremental Contribution Margin per jar = $2.35
2. Break Even Sales per month = 1957 units
First page is having all the data of the question, where the word Drum is not used. So the second page questions are nt relevent to the given data.
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