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 $4.20 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, $8,400 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.)

Minimum number of JARS? ________

Answer 1

Answer

It is mentioned in the question that further processing will require ¼ of Grit 337, So if we use this in further processing then the Selling price of ¼ will be deducted from Sales Revenue of Silver Polish as if we have not processed it further then we would have sold it.

So to

	$
Selling Price of Silver Polish	4.20
Sales Revenue if Grit 337	0.95
Net Sales Revenue	3.25
Less: Cost
Producing Cost	2.40
Selling Cost	0.30
Net Revenue per Unit	0.55

Fixed Cost which can be avoided when we start producing Silver Polish = $8,400

So to become the Decision Financially Viable we need to sell at least that no. of Units which can cover Avoidable Fixed Cost

No. of Units = $8,400 / $0.55 Per unit

No. of Units = 15,273 Units

Answer = 15,273 Jars