Come-Clean Corporation produces a variety of cleaning compounds and solutions fo
ID: 2500365 • Letter: C
Question
Come-Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use. While most of its products are processed independently, a few are related, such as the company’s Grit 337 and its Sparkle silver polish.
Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.20 a pound to make, and it has a selling price of $7.40 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 ingredients to form a paste that is marketed as Sparkle silver polish. The silver 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 involved in the processing of a jar of silver polish are:
The production supervisor has no duties other 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.
Advertising costs for the silver polish total $3,000 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 profitable to sell all of the Grit 337 as a cleaning powder.
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.)
Incremental Contribution Margin Per Jar ______
2. What is the minimum number of jars of silver polish that must be sold each month to justify the continued processing of Grit 337 into silver polish?
Number Of Jars _____
Come-Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use. While most of its products are processed independently, a few are related, such as the company’s Grit 337 and its Sparkle silver polish.
Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.20 a pound to make, and it has a selling price of $7.40 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 ingredients to form a paste that is marketed as Sparkle silver polish. The silver 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 involved in the processing of a jar of silver polish are:
Explanation / Answer
Come Clean corporation Details Grit 337 Contribution/lb Selling price/lb 7.40 Cost /lb 1.20 Contribution Margin/lb 6.20 Contribution per 1/4th lb 1.55 Contribution Margin Silver polish per Jar Sales price per jar 5 Grit 337 cost 0.30 Other Ingredients 0.60 Direct Labor 1.36 Var Mfg OH 0.34 Var selling cost 0.25 Total Variable cost per jar 2.85 Contribution per Jar 2.15 1 Incremental contribution per jar from further processing into silver polish= (2.15-1.55)= $ 0.60 2 Relevant fixed cost for silver polish= Supervisor cost 3,000.00 Advertising cost 3,000.00 Total 6,000.00 Depreciation not considered relevant as no wear out happens and is a sunk cost Incremental contribution /jar= 0.60 So minimum no of jars to be sold for justifying conversion into silver polish =6000/0.60 = 10,000.00 So min no of jars for silver polish conversion justification per month is 10,000