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Come Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use. While most of its products are processed independent
Come Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use. While most of its products are processed independent y, a few are related, such as the company's Grit 337 and its Sparkle silver polish. Grit 337 is a coarse ceaning powder vith many industrial uses. It costs $1.20 a pound to make, and it has a selling price of $7.40 a pound A small portion of the annual production of Grit 337 is retained in the factory for further processing It is combined with several other ingredients to form a paste that is marketed as Sparkle silver polish. The silver polish sells for $5.00 per ja This further processing requires one-fourth pound of Grit 337 per jar of silver polish. The additional direct costs involved in the processing of a jar of silver polish are: Other ingredients 0.65 Direct labo 1.40 Total direct cost 2.05 Overhead costs associated with processing the silver polish are: Variable manufacturing overhead cost 25% of direct labor cost Fixed manufacturing overhead cost (per month) Production supervisor 3.000 Depreciation of mixing equipment S 5000 The production supervisor has no duties other than t oversee production of the silver polish. The mixing equipment is special-purpose equipment acquired specifically to produce the silver polish. Its resale value is negligible and it does not wear out through use. Direct labor is a variable cost at Come-Clean Corporation. Advertising costs for the silver polish total $2,000 per month. Variable selling costs associated with the silver polish are 5% of sales. Due to a recent decline in the demand for silver polish, the company is wondering whether its continued production is advisable. The sales manager feels that it would be more profitable to sell a of the Grit 337 as a cleaning powd
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