Come-Clean Corporation produces a variety of cleaning compounds and solutions fo
ID: 2516683 • 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 $2.60 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 $4.00 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:
Overhead costs associated with processing the 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.
Direct labor is a variable cost at Come-Clean Corporation.
Advertising costs for the silver polish total $4,500 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.
Other ingredients 0.55 Direct labor 1.44 Total direct cost $ 1.99 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.) tal c 2. What is the minimum number of jars or silver polish that must be sold each month to justity the continued processing of Grit 337 into silver polish? (Round your intermediate calculations to 2 decimal places.) Number ofExplanation / Answer
Computation of Incremental Contribution in case ( Further Processing) Particular Amount Amount Selling Price of Silver Polish per Jar $4.00 Less: Additional Variable Cost Direct Cost $1.99 Variable Manufacturing OH (1.44*25%) $0.36 Selling Cost ($4*5%) $0.20 $2.55 Incremental ContributionMargin for Silver Polish $1.45 Computation of Minimum Jar to be Produced to cover fixed Cost and Variable cost Particular Amount Amount Contribution Margin Per Jar Cost of Grilt337 $1.20 Incremental Contribution margin per Jar $1.45 $2.65 Fixed Expense Permonth Fixed Manufacturing Overhead(3500+1500) $5,000.00 Advertising Cost $4,500.00 $9,500.00 BEP Unit( Fixed Cost/Contribution Per Unit 3,585 Hence, minimum 3585 Unit to be Produce