Sell or Process Further Decisions
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. 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:
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?
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?
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? Explain.
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?
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?
Want to see the full answer?
Check out a sample textbook solutionChapter 11 Solutions
BREWER ND LL INTRO MGRL ACTG CON+ AC
- 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 $6.80 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 variable costs involved in the processing of a jar of silver polish are: Other ingredients $ 0.65 Direct labor 1.36 Total direct cost $ 2.01 Overhead costs associated with processing the silver polish are: Variable…arrow_forwardCome-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 $5.40 a pound to make, and it has a selling price of $9.60 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 variable costs involved in the processing of a jar of silver polish are: Other ingredients Direct labor Total direct cost $ -0.11 0.72 $ .61 Overhead costs associated with processing the silver polish are: Variable manufacturing overhead cost…arrow_forwardCome-Clean Corporation produces a variety of cleaning compounds and solutions forboth industrial and household use. While most of its products are processedindependently, a few are related, such as the company’s Grit 337 and its Sparkle silverpolish.Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.60 a poundto make, and it has a selling price of $6.80 a pound. A small portion of the annualproduction of Grit 337 is retained in the factory for further processing. It is combinedwith 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. Theadditional direct variable costs involved in the processing of a jar of silver polish are:Other ingredients $ 0.60Direct labor 1.40Total direct cost $ 2.00Overhead costs associated with processing the silver polish are:Variable manufacturing overhead cost 25 % of direct…arrow_forward
- Come-Clean Corporation produces a variety of cleaning compounds and solutions forboth industrial and household use. While most of its products are processedindependently, a few are related, such as the company’s Grit 337 and its Sparkle silverpolish.Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.60 a poundto make, and it has a selling price of $6.80 a pound. A small portion of the annualproduction of Grit 337 is retained in the factory for further processing. It is combinedwith 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. Theadditional direct variable costs involved in the processing of a jar of silver polish are:Other ingredients $ 0.60Direct labor 1.40Total direct cost $ 2.00Overhead costs associated with processing the silver polish are:Variable manufacturing overhead cost 25 % of direct…arrow_forwardA7arrow_forwardCh 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 $2.20 a pound to make and sells for $3.40 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 $5.10 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 $0.30 per jar. If the decision were made to cease production,of the silver polish, $8,500 of Mixing Department fixed costs could be avoided. Zytel has limited production capacity for Grit 337, but unlimited demand for the cleaning powder.…arrow_forward
- carrow_forwardZytel 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 powderwith many industrial uses, costs $1.60 a pound to make and sells for $2.00 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 $4.00 per jar. This further processing requires ¼ pound of Grit 337 per jar. Costs of other ingredients, labor, and variable overhead associated with this further processing amount to $2.50 per jar. Variableselling costs are $.30 per jar. If the decision were made to cease production of the silver polish, $5,600 of Mixing Department fixed costs could be avoided. Zytel has limited production capacity for Grit 337, but unlimited demand for the cleaning powder. Required:…arrow_forwardDineshbhaiarrow_forward
- COLORADO INC. is a chemical manufacturer that supplies various products to industrial users. The company plans to introduce a new chemical solution, called Nysap, for which it needs to develop a standard product cost. The following information is available on the production of Nysap: Nysap is made by combining a chemical compound (nyclyn) and a solution (salex), and boiling the mixture. A 20% loss in volume occurs for both the salex and the nyclyn during boiling. After boiling, the mixture consists of 9.6 liters of salex and 12 kilograms of nyclyn per 10-liter batch of Nysap. After the boiling process is complete, the solution is cooled slightly before 5 kilograms of protet are added per 10-liter batch of Nysap. The addition of the protet does not affect the total liquid volume. The resulting solution is then bottled in 10-liter containers. The finished product is highly unstable, and one10-liter batch out of six is rejected at final inspection. Rejected batches have no commercial…arrow_forwardOutsourcing Dough, Re, Mi Inc. sells many different types of cookie dough. The company is deciding whether to continue making its own dough or to outsource. If the company outsources, they will eliminate all of the variable overhead and 30% of the fixed manufacturing overhead, but will incur shipping costs. Use the information below to determine whether Dough, Re, Mi Inc. should outsource or not. Data Units Per unit Relevant? Sales price per unit $ Direct materials 119.00 26.00 per unit Direct labor per unit 18.00 Variable manufacturing overhead per unit 14.00 Fixed manufacturing overhead (MOH): per month 30.00 Avoidable fixed MOH per month Unavoidable fixed MOH per month Sales commissions per unit 3.00 Advertising costs per month per unit Purchase price of outsourced product Shipping costs of outsourced product 1.80 59.00 1.00 per unit Costs per unit Incremental analysis Manufacture Variable costs Enter "=0" in the cell for any cost not relevant to the decision. Direct materials…arrow_forwardThe Cycle Division of Culver Company has the following unit data related to its most recent cycle, the Roadster. Presently, the Cycle Division buys its body frames from an outside supplier. However Culver has another division, FrameBody, that makes body frames for other cycle companies. The Cycle Division believes that FrameBody's product is suitable for its new Roadster cycle. Presently, FrameBody sells its frames for $406 per frame. The variable cost for FrameBody is $306. The Cycle Division is willing to pay $314 to purchase the frames from FrameBody. (b) Assume that FrameBody does NOT have excess capacity and therefore would lose sales if the frames were sold to the Cycle Division. If the Cycle Division buys 1,160 frames from FrameBody, determine the following: (1) Effect on the income of the Cycle Division (2) Effect on the income of FrameBody (3) Effect on the income of Culverarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education