Question

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 $2.60 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 $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, $8,400 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 places and final answer to the nearest whole number.)

Answer 1

Number of Jars must be sold	9,882
Working Note 4:
Target Units = Fixed cost/Contribution per unit
Calculation of avoidable fixed cost
Fixed cost avoided	8,400
Total Fixed cost	8,400
Divided by Incremental Contribution per unit	0.85
Number of Jars must be sold	9,882

Working Note 1:
	Grit 377 (1/4)	Silver Polish	Net Increase/(Decrease)
Selling Price per Jar	0.95	4.70	3.75
Less: Variable Cost
Making cost of Grit 377	0.65	0.65	0.00
Other Ingredient	0.00	2.40	2.40
Variable selling Expense	0.00	0.50	0.50
Contribution Margin per Jar	0.30	1.15	0.85