Question

Problem 12-3 Pronghorn Industrial Products Inc. 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.

Answer 1

Allocated cost is irrelevant since already incurred
1.Weekly gross profit = 216,600 - 0 = $216,600
2.If processed further = 342,000-104,000 = $238,000
Made wrong decision
	Don’t Process	Process	Net Income Increase
Incremental Revenue	216,600	342,000	125,400
Incremental costs	-	104,000	(104,000)
Totals	216,600	238,000	21,400