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, 891,000 ounces of chemical input are processed at a cost of $212,400 into 594,000 ounces of floor cleaner and 297,000 ounces of table cleaner. The floor cleaner has no market polish with the trade name FloorShine. The additional processing costs for this conversion amount to $241,800. FloorShine sells at $21 per 30-ounce bottle. The table cleaner can be sold for $20 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 297,000 ounces of another compound (TCP) to the 297,000 ounces of table cleaner. This joint process will yield 297,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $109,000. 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 Cleaner 297,000 $237,600 Process Further Table Stain Remover Table (TSR) Polish (TP) Total 297,000 297,000 $178,200 $178,200 $356,400 Production in ounces Revenues Costs: CDG costs TCP costs Total costs Weekly gross profit 70,800 53,100 500 53,100 106,200** 54,500 109,000 107,600 215,200 $70,600 $141,200 107,600 70,800 $166,800 $70,600 "If table cleaner is not processed further, it is allocated 1/3 of the $212,400 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,188,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost. (a) Your answer is correct. Determine if management made the correct decision to not process the table cleaner further by doing the following. (1) Calculate the company's total weekly gross profit assuming the table cleaner is not processed further. Total weekly gross profit $ (2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further. Total weekly gross profit $ C 2 09000 (3) Compare the resulting net incomes and comment on management's decision Management made the wrong decision by choosing to not process table cleaner further. Attempts: 1 of 7 used Using incremental analysis, determine if the table cleaner should be processed further. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Don't Process Table Cleaner Further Process Table Cleaner Further Net Income Increase (Decrease) Incremental revenue $ Incremental costs Totals Table cleaner be processed further.

Answer 1

Please find below table useful to compute desired results: -

(a (2 A B D 1 (a)(1) Table Cleaner Not Processed Further Sales: Floor Shine =594000/30*21 Table cleaner =297000/25*20 Total revenue =C3+C4 Costs: CDG 212400 Additional costs of Floor Shine 241800 Total costs =C7+C8 Total weekly gross profit S 1=D5-D9 Table Cleaner Processed Further Sales: Floor Shine =594000/30*21 Table Stain Remover =297000/25*15 Table Polish =297000/25*15 Total revenue =SUM(C13:C15) Costs: CDG 212400 Additional costs of Floor Shine 241800 TCP 109000 Total costs =SUM(C18:C20) Total weekly gross profit S =D16-D21 23 (a)(3) Management made the wrong decision by choosing to not process table cleaner further 24 (6) Don't Process Table Cleaner Further Process Table Cleaner Further Net Income Increase Decrease) 25 Incremental revenue 237600 356400 =C25-B25 26 Incremental costs =-109000 =C26-B26 27 Totals =B25+B26 =C25+C26 =D25+D26 Table Cleaner should be processed further.

End results would be as follows: -

Α. (a)(1) ܝܙ ܝ ܚ ܙ ܟ ܗ ܨ ܗ ܩ (a) (2) B D Table Cleaner Not Processed Further Sales: Floor Shine I 415.800 Table cleaner 237,600 Total revenue 653,400 Costs: CDG 212.400 Additional costs of Floor Shine 241.800 Total costs 454,200 Total weekly gross profit $ 199,200 Table Cleaner Processed Further Sales: Floor Shine 415,800 Table Stain Remover 178,200 Table Polish 178,200 Total revenue 772,200 Costs: CDG 212,400 Additional costs of Floor Shine 241,800 TCP 109,000 Total costs 563,200 Total weekly gross profit S 209.000 Management made the wrong decision by choosing to not process table cleaner further Don't Process Table Cleaner Further Process Table Cleaner Further Net Income Increase (Decrease) 237,600 356,400 118.800 (109,000) (109,000) 237,600 247,400 9,800 Table Cleaner should be processed further. 23 (a) (3) 24 (6) 25 Incremental revenue 26 Incremental costs 27 Totals 28