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.

  

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 places and final answer to the nearest whole number.)

Answer 1

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