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, 886,500 ounces of chemical input are processed at a cost of $209,100 into 591,000 ounces of floor cleaner and 295,500 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 $252,100. Floor Shine sells at $18 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 295,500 ounces of another compound (TCP) to the 295,500 ounces of table cleaner. This joint process will yield 295,500 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $106,000. 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 295,500 $224,580 Process Further Table Stain Remover Table (TSR) Polish (TP) Total 295,500 295,500 $177,300 $177,300 $354,600 Production in ounces Revenues Costs: CDG costs TCP costs Total costs Weekly gross profit 69,700 52,275 53,000 105,275 $72,025 52.275 104,550 ** 53,000 106,000 105,275 210,550 $72,025 $144,050 69,700 $154,880 *If table cleaner is not processed further, it is allocated 1/3 of the $209,100 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,182,000 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 partially 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 $ 117980 (2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further. Total weekly gross profit $ (3) Compare the resulting net incomes and comment on management's decision.

Answer 1

solution mum n ① calculation of the company's total weekly gross profit assuming the table cleaner is not Processed furthur. Particulars Amount( $) Amount ) sales Table cleaner 9.24.580 Floov shine 3.54,600 (5.91.000 x 1 30 5:49,180 Total sales costs CDG cost's Additional Processing costs for floorshine (2,09,100) (2,52,100) (4,61,200) Total weekly Gross Profit > 1, 14, 980

@ computation of the company's total weetly gross Profit assuming the table cleaner is Processed further in un mun Particulars Amount ($) Amount! sales Table stain remover 1,77,300 Tablo Polish 1,75,300 floor shine 3,54,600 7.09.200 Total sally costs': CDG costs Additional Processing costs for floor shine TCT costs 2,09,100) (2,59,100) 6,06,000) - - (5,67,200) 1. 49.000 Total weekly Gross Profit ③ management made wrong decision by choosing not to Process further.
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