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 a 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 SilPolproduced. Variable selling costs for this product average $0.30 per unit. If production of the 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.

GR37:
Selling price per pound = ………………………					$2.00
Cost to make (per pound) = …………………..					$1.60
SilPol (Silver Polish):
Selling price per unit = …………………………					$4.00
Addional processing cost/unit = ………………..					$2.50
Amount of GR37 needed per unit = …………....					0.25	lb.
Variable selling costs/unit = ……………………					$0.30
Avoidable fixed costs = ……………………….					$5,600
Current max. output (GR37) (Part 2) = ………..					5,000	lbs.

Required

1. Calculate the minimum number of units of SilPol that would have to be sold in order to justify further processing of GR37.

2. Assume that the cost data reported for GR37 is obtained at a level of output equal to 5,000 pounds., which is the maximum that the company can produce at this time. Prepare an income statement 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/sale of GR37; © 8,000 units of SilPol are produced, with the balance of capacity devoted to the sale of GR37; and (d) 10,000 units of SilPol are produced, with the balance of capacity devoted to the sale of GR37.