Saved Help Save & Exit Submit Zytel Corporation produces cleaning compounds and

ID: 2583918 • Letter: S

Question

Saved Help Save & Exit Submit Zytel 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 $1.80 a pound to make and sells for $3.00 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 $4.70 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 $2.40 per jar. Variable selling costs are $0.50 per jar, If the decision were made to cease production of the silver polish, $8,000 of Mixing Department fixed costs could be avoided. Zytel has limited production capacity for Grit 337 but unlimited demand for the cleaning powder Required 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 pleces and final answer to the nearest whole number.) Minimum number of jars Prev Next 2 11:36 PM 11/29/2017

Explanation / Answer

Zytel Corporation

Silver Polish Jar

Sales revenue per jar of silver polish

4.70

Sales revenue lost for ¼ pound of Grit 337 ($1.80 ÷ 4)

-0.45

Net sales revenue per jar of silver polish

4.25

Cost of Production

Less: Variable processing costs

-2.40

variable Selling cost

-0.50

-2.90

Contribution Margin

1.35

Break Even point

$8000/1.35 per jar = 5926 Jars

The point of indifference is 5,926 jars. If more than 5,926 jars of silver polish can be old, then Zytel should further process the Grit 337 into the silver polish. If less than 5,926 jars of silver polish can be sold, then Zytel should cease production of the silver polish.