X CO produces a 16 ounce can of BR at a cost of $1.80 to make and
Question:
X CO produces a 16 ounce can of BR at a cost of $1.80 to make and sells for $3.00. 16 ounces of BR can be further refined into 4 small tins of CP. The chrome polish sells for $5.00 per tin.
Variable Production Cost to convert to chrome polish
Materials $1.65 per tin
Direct Labor $1.20 per tin
Variable O/H 25% of DL$
Fixed Production Cost of chrome polish
Fixed Supervision $2,500 per month
Equipment Depreciation $1,200 per month
Selling Cost of chrome polish
Advertising $4,000 per month
Commissions 8% of revenue
All equipment has no resale value and can only be used for the CP. The supervisor is specific to the CP product and would be terminated if the polish is no longer made. The company normally allows 40,000 ounces of bug remover to be processed into CP per month. Is making the CP a financially good decision? Why or why not. What are the non-financial reasons why X CO. should or should not make the polish. Explain the specific items that might be in X CO.'s overhead and how the 25% of DL$ would have been computed.
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne