Question

Problem 21-3A 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 $207,600 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 $257,800 FloorShine sells at $20 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 $103,000. 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. Process Further Table Stain Remover (TSR) Table Table Polish (TP) Total Cleaner Production in ounces285,000 $216,600 285,000 $171,000 285,000 $171,000 $342,000 Revenues Costs: CDG costs TCP costs 69,200 51,900 51,500 103,400 $67,600 51,900 103,800** 51,500 103,000 103,400 206,800 567,600 $135,200 Total costs 69,200 $147,400 Weekly gross profit If table cleaner is not processed further, it is allocated 1/3 of the $207,600 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.

Answer 1

Part(1):

Particulars	Amount $	Total amount $
Sales :
Floor shine	342000
Table cleaner	216600
Total sales		558,600
Costs :
CDG costs	207600
Additional floor shine	257800
Total costs		465,400
Gross Profit		93,200

Part(2)

Particulars	Amount $	Total amount $
Sales :
Floor shine	342000
Table stain remover	171000
Table polish	171000
Total sales		684,000
Costs :
CDG costs	207600
Additional floor shine	257800
TCP costs	103000
Total costs		568,400
Gross Profit		115,600

Part(3)

Particulars	Don't process table cleaner further	Process table cleaner further	Net increase or (decrease)
Incremental revenue	216600	342000	125,400
Incremental cost	0	103,000	(103000)
Totals	216600	239,000	22,400

This proves that the management should have processed the table cleaner further because they would have made $22400 more.

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