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, 904,500 ounces of chemical input are processed at a cost of $210,300 into 603,000 ounces of floor cleaner and 301,500 oun 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 $255,500. Floor Shine sells at $22 per 30-ounce bottle. The table cleaner can be sold for $17 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 301,500 ounces of another compound (TCP) to the 301,500 ounces of table cleaner. This joint process will yield 301,500 ounces each of table stain remover (TSR) and table polish (TP) The additional processing costs for this process amount to $100,000. Both table products can be sold for $14 per 25-ounce bottle. The company decided not to process the table cleaner into TSR and TP based on the following analysis. Table Cleaner 301,500 $205,020 Process Further Table Stain Remover Table (TSR) Polish (TP) Total 301,500 301,500 $168,840 $168,840 $337,680 Production in ounces Revenues Costs: CDG costs TCP costs Total costs Weekly gross profit 70,100 52,575 50,000 102,575 $66,265 52,575 105,150 ** 50,000 100,000 102,575 205,150 $66,265 $132,530 70,100 $134,920 *If table cleaner is not processed further, it is allocated 1/3 of the $210,300 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,206,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

Answer 1

Allocated cost is irrelevant since already incurred
1.Weekly gross profit = 205020 - 0 = $205,020
2.If processed further = 337,680-100,000 = $237,680
Made wrong decision
	Don’t Process	Process	Net Income Increase
Incremental Revenue	205,020	337,680	132,660
Incremental costs	-	100,000	(100,000)
Totals	205,020	237,680	32,660