Sell-or-Process-Further Decision; Product Mix Cantel Company produces cleaning compounds for both commercial and household customers. Some of these products are producedas part of a joint manufacturing process. For example, GR37, a coarse cleaning powder meantfor commercial sale, costs $1.60 a pound to make and sells for $2.00 per pound. A portion ofthe annual production of GR37 is retained for further processing in a separate department whereit is combined with several other ingredients to form SilPol, which is sold as a silver polish,at $4.00 per unit. The additional processing requires ¼ pound of GR37 per unit; additionalprocessing costs amount to $2.50 per unit of SilPol produced. Variable selling costs forSilPol average $0.30 per unit. If production of SilPol were discontinued, $5,600 of costs inthe processing department would be avoided. Cantel has, at this point, unlimited demand for,but limited capacity to produce, product GR37.Required1. Calculate the minimum number of units of SilPol that would have to be sold in order to justify furtherprocessing of GR37. Round your answer to nearest whole number. 2. Assume that the cost data reported for GR37 are obtained at a level of output equal to 5,000 pounds,which is the maximum that the company can produce at this time. What is the expected operatingincome (to the nearest whole dollar) under each of the following scenarios: (a) all available capacity isused to produce GR37, but no SilPol; (b) 4,000 units of SilPol are produced, with the balance of capacity devoted to the production and sale of GR37; (c) 8,000 units of SilPol are produced, with the balanceof capacity devoted to the production and sale of GR37; and (d) 10,000 units of SilPol are produced,with the balance of capacity devoted to the production and sale of GR37.
Sell-or-Process-Further Decision; Product Mix Cantel Company produces cleaning compounds for both commercial and household customers. Some of these products are produced
as part of a joint manufacturing process. For example, GR37, a coarse cleaning powder meant
for commercial sale, costs $1.60 a pound to make and sells for $2.00 per pound. A portion of
the annual production of GR37 is retained for further processing in a separate department where
it is combined with several other ingredients to form SilPol, which is sold as a silver polish,
at $4.00 per unit. The additional processing requires ¼ pound of GR37 per unit; additional
processing costs amount to $2.50 per unit of SilPol produced. Variable selling costs for
SilPol average $0.30 per unit. If production of SilPol were discontinued, $5,600 of costs in
the processing department would be avoided. Cantel has, at this point, unlimited demand for,
but limited capacity to produce, product GR37.
Required
1. Calculate the minimum number of units of SilPol that would have to be sold in order to justify further
processing of GR37. Round your answer to nearest whole number.
2. Assume that the cost data reported for GR37 are obtained at a level of output equal to 5,000 pounds,
which is the maximum that the company can produce at this time. What is the expected operating
income (to the nearest whole dollar) under each of the following scenarios: (a) all available capacity is
used to produce GR37, but no SilPol; (b) 4,000 units of SilPol are produced, with the balance of capacity devoted to the production and sale of GR37; (c) 8,000 units of SilPol are produced, with the balance
of capacity devoted to the production and sale of GR37; and (d) 10,000 units of SilPol are produced,
with the balance of capacity devoted to the production and sale of GR37.
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