Question

Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company's Dargan plant produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week, 855,000 ounces of chemical input are processed at a cost of $207,000 into 570,000 ounces of floor cleaner and 285,000 ounces of table cleaner. The floor cleaner has no market value until it is converted into a polish with the trade name FloorShine. The additional processing costs for this conversion amount to $258,700. Floor Shine sells at $21 per 30-ounce bottle. The table cleaner can be sold for $19 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 285,000 ounces of another compound (TCP) to the 285,000 ounces of table cleaner. This joint process will yield 285,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $104,000. Both table products can be sold for $15 per 25-ounce bottle. The company decided not to process the table cleaner into TSR and TP based on the following analysis. Table Process Further Table Stain Remover Table (TSR) Polish (TP) Total 285,000 285,000 $171,000 $171,000 $342,000 Cleaner 285,000 $216,600 Production in ounces Revenues Costs: CDG costs TCP costs Total costs Weekly gross profit 69,000 O 69,000 $147,600 51,750 52,000 103,750 $67,250 51,750 103,500 ** 52,000 104,000 103,750 207,500 $67,250 $134,500 *If table cleaner is not processed further, it is allocated 1/3 of the $207,000 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,140,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.
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Answer 1

Thompson Industrial Products Inc. Requirement al.. No of bottles - Floor cleaner Price per bootle - Floor cleaner Total revenue -Floor cleaner Not Processed Further 19000 21 399000 11400 No of bottles - Table cleaner Price per bootle - Table cleaner Total revenue - Table cleaner 19 216600b 615600 Total Revenue Less: Cost of production Additional Processing cost Gross Profit 465700 149900 Requirement a2.. Processed Further 19000 No of bottles - Floor cleaner Price per bootle - Floor cleaner Total revenue -Floor cleaner 399000 11400 No of bottles - Table Stain remover Price per bootle - Table Stain remover Total revenue - Table Stain remover 15 171000 11400 No of bottles - Table polish Price per bootle - Table polish Total revenue - Table polish 15 171000 C 741000 Total Revenue Less: Cost of production Additional Processing cost Gross Profit 465700 104000 171300 Requirement a3.. Incremental earnngs as a result of further processing Profit when table cleaner is processed further Profit when table cleaner is not processed further 171300 149900 21400 Decision: Processing results into a $21,400 increase in net income, hence the decision by management not to process further is not a wise decision.