Juarez Corporation produces cleaning compounds and solutions for industrial and
ID: 2527701 • Letter: J
Question
Juarez Corporation produces cleaning compounds and solutions for industrial and household use. While most of its products are processed independently, a few are related. Grit 337, a coarse cleaning powder with many industrial uses, costs $2.60 a pound to make and sells for $3.80 a pound. A small portion of the annual production of this product is retained for further processing in the Mixing Department, where it is combined with several other ingredients to form a paste, which is marketed as a silver polish selling for $6.00 per jar. This further processing requires 1/4 pound of Grit 337 per jar. Costs of other ingredients, labor, and variable overhead associated with this further processing amount to $2.20 per jar. Variable selling costs are $0.30 per jar. If the decision were made to cease production of the silver polish, $8,800 of Mixing Department fixed costs could be avoided. Juarez has limited production capacity for Grit 337, but unlimited demand for the cleaning powder.
Calculate the minimum number of jars of silver polish that would have to be sold to justify further processing of Grit 337. (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)
Juarez Corporation produces cleaning compounds and solutions for industrial and household use. While most of its products are processed independently, a few are related. Grit 337, a coarse cleaning powder with many industrial uses, costs $2.60 a pound to make and sells for $3.80 a pound. A small portion of the annual production of this product is retained for further processing in the Mixing Department, where it is combined with several other ingredients to form a paste, which is marketed as a silver polish selling for $6.00 per jar. This further processing requires 1/4 pound of Grit 337 per jar. Costs of other ingredients, labor, and variable overhead associated with this further processing amount to $2.20 per jar. Variable selling costs are $0.30 per jar. If the decision were made to cease production of the silver polish, $8,800 of Mixing Department fixed costs could be avoided. Juarez has limited production capacity for Grit 337, but unlimited demand for the cleaning powder.
Explanation / Answer
Incremental selling price: Jar produced from 1 pound of Gritt 4 jars Sselling price per jar $6 Selling price per popund after further processing 24 Less: Selling price per pound without process. 3.8 Incremental revenue generated per pound 20.2 Incremental revenue per Jar of Silver polish (20.20/4) 5.05 Less: Incremental cost incurred: Labour and overheads oh per jar 2.2 Cost of Jar 0.3 Incremental saving per jar 2.55 Now, Saving in Fixed cost with closing down 8800 Divide: Incremental saving per Jar 2.55 Number of Jars that must be sold 3451 Jars
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