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 $1.60 a pound to make, and it has a selling price of $2.00 a pound. A small portion of the annual production of Grit 337 is retained in the factory for further processing. It is combined with severa 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 variable costs involved in t processing of a jar of silver polish are: Other ingredients Direct labor $ 0.65 1.48 $ 2.13 Total direct cost Overhead costs associated with processing the silver polish are: Variable manufacturing overhead cost Fixed manufacturing overhead cost (per month): Production supervisor Depreciation of mixing equipment 25% of direct labor cost $ 3,000 $ 1,400 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. It can produce up to 15,000 jars of polish per month. Its resale value is negligible and it does not wear out through use. Advertising costs for the silver polish total $4,000 per month. Variable selling costs associated with the silver polish are 7.5% 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.
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 $1.60 a pound to make, and it has a selling price of $2.00 a pound. A small portion of the annual production of Grit 337 is retained in the factory for further processing. It is combined with severa 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 variable costs involved in t processing of a jar of silver polish are: Other ingredients Direct labor $ 0.65 1.48 $ 2.13 Total direct cost Overhead costs associated with processing the silver polish are: Variable manufacturing overhead cost Fixed manufacturing overhead cost (per month): Production supervisor Depreciation of mixing equipment 25% of direct labor cost $ 3,000 $ 1,400 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. It can produce up to 15,000 jars of polish per month. Its resale value is negligible and it does not wear out through use. Advertising costs for the silver polish total $4,000 per month. Variable selling costs associated with the silver polish are 7.5% 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 $1.60 a pound to make, and it has a selling price of $2.00 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 variable costs involved in the
processing of a jar of silver polish are:
Other ingredients
Direct labor
$ 0.65
1.48
$ 2.13
Total direct cost
Overhead costs associated with processing the silver polish are:
Variable manufacturing overhead cost
Fixed manufacturing overhead cost (per month):
Produ
25% of direct labor cost
ion supervisor
Depreciation of mixing equipment
$ 3,000
$ 1,400
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. It can produce up to 15,000 jars of polish per month. Its resale
value is negligible and it does not wear out through use.
Advertising costs for the silver polish total $4,000 per month. Variable selling costs associated with the silver polish are 7.5% 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.
Required:
1. How much incremental revenue does the company earn per jar of polish by further processing Grit 337 rather than selling it as a
cleaning powder? (Round your answer to 2 decimal places.)
2. How much incremental contribution margin does the company earn per jar of polish by further processing Grit 337 rather than
selling it as a cleaning powder? (Round your intermediate calculations and final answer to 2 decimal places.)
3. How many jars of silver polish must be sold each month to exactly offset the avoidable fixed costs incurred to produce and sell the
polish? (Round your intermediate calculations to 2 decimal places.)
4. If the company sells 9,000 jars of polish, what is the financial advantage (disadvantage) of choosing to further process Grit 337
rather than selling is as a cleaning powder? (Enter any "disadvantages" as a negative value. Round your intermediate calculations
to 2 decimal places.)
5. If the company sells 11,500 jars of polish, what is the financial advantage (disadvantage) of choosing to further process Grit 337
rather than selling is as a cleaning powder? (Enter any "disadvantages" as a negative value. Round your intermediate calculations
to 2 decimal places.)
1. Incremental revenue
per jar
2. Incremental contribution margin
per jar
3. Number of jars that must be sold
per month
4. Financial advantage (disadvantage)
5. Financial advantage (disadvantage)
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