1 | Incremental revenue | $ 3.15 | per jar |
2 | Incremental contribution margin | $ 0.60 | per jar |
3 | Number of jars that must be sold | 10000 | per month |
4 | Financial advantage (disadvantage) | $ -1,380 | |
5 | Financial advantage (disadvantage) | $ 540 |
Working:
1 | Incremental revenue per jar: | |
Selling price of silver polish (per jar) | $ 5.00 | |
Selling price of Grit 337 (1/4 pound) ($7.40 x 1/4) | $ 1.85 | |
Incremental revenue per jar | $ 3.15 | |
2 | Incremental variable costs per jar: | |
Other ingredients | $ 0.55 | |
Direct labor | $ 1.40 | |
Variable manufacturing overhead cost ($1.40 x 25%) | $ 0.35 | |
Variable selling costs (5% x $5) | $ 0.25 | |
Incremental variable costs per jar | $ 2.55 | |
Incremental contribution margin per jar ($3.15 - $2.55) | $ 0.60 |
Note: The cost of $1.60 per pound required to make Grit 337 is irrelevant since the same is incurred irrespective of whether Grit 337 is sold as a cleaning powder or is processed further into silver polish.
3. If the processing of Grit 337 into silver polish is discontinued, the production supervisor's salary of $3400 and advertising expense of $2600 would be avoided. Thus, the total avoidable fixed costs would be $3400 + $2600 = $6000.
Number of jars required to be sold each month to justify further processing of Grit 337 into silver polish = Total avoidable fixed costs/Incremental contribution margin = $6000/$0.60 = 10000 jars per month.
4 | Number of jars of silver polish sold | 7700 |
Total incremental contribution (7700 x $0.60) | $ 4,620.00 | |
Less: Avoidable fixed costs | $ 6,000.00 | |
Financial advantage (disadvantage) $ | $ -1,380.00 | |
5 | Number of jars of silver polish sold | 10900 |
Total incremental contribution (10900 x $0.60) | $ 6,540.00 | |
Less: Avoidable fixed costs | $ 6,000.00 | |
Financial advantage (disadvantage) $ | $ 540.00 |
Come-Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use....
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 $7.20 a pound. A small portion of the annual production of Grit 337 is retained in...
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 $7.20 a pound. A small portion of the annual production of Grit 337 is retained in...
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 $3.20 a pound. A small portion of the annual production of Grit 337 is retained in...
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 $760 a pound. A small portion of the annual production of Grit 337 is retained...
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 $11.40 a pound. A small portion of the annual production of Grit 337 is retained in...
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 $6.80 a pound. A small portion of the annual production of Grit 337 is retained in...
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 $7.80 a pound. A small portion of the annual production of Grit 337 is retained in...
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 $4.20 a pound. A small portion of the annual production of Grit 337 is retained in...
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 $3.00 a pound. A small portion of the annual production of Grit 337 is retained in...
Come Clean Corporation produces a vanety 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 Grt 337 and its Sparkle silver polish Gmt 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 $6.50 a pound. A small portion of the annual production of Grit 337 is retained...