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 $2.40 a pound to make and sells for $3.60 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 $5.90 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 $0.20 per jar. If the decision were made to cease production of the silver polish, $9,300 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

Sales Revenue for 1 Jar of Silver Polish	5.90
Selling Price of 1/4 pound of Grit 337 - $3.60 X 1/4	0.90
Incremental Revenue from Furter Processing	5.00
Incremental Variable Costs
Processing Costs	2.20
Selling Costs	0.20
Total Incremental Variable Costs	2.40
Incremental Contribution Margin	2.60
Minimum no. of Jars of Silver Polish to be Sold = $9,300 (Incremantal Fixed Costs) / $2.60 (Incremental Contribution Margin
Minimum no. of Jars of Silver Polish to be Sold = 3,576.92 or say $3,577 Jars (approx.)