Question

on Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company Thom duces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG) pro ounces of chemical input are processed at a cost of $210,000 into 600,000 ounces of floor cleaner a cleaner. The floor cleaner has no market value until it is converted into a polish with the trade nam nd 300,000 ounces processing costs for this conversion amount to $240,000 of table e FloorShine. The additional FloorShine sells at $20 per 30-ounce bottle. The table cle cleaner can be converted into two other products by adding 300,000 ounces of an of table cleaner. This joint process will yield 300,000 ounces each of table stain remover (TSR) and table polish (TP). The aner can be sold for $17 per 25-ounce bottle. However, the table other compound (TCP) to the 300,000 ounces tional processing costs for this process amounts to $100,000. Both table products can be sold for $14 per $25-ounce bottie The company decided not to process the table cleaner into TSR and TP based on the following analyss Process Further Table Table Stain Table CleanerRemover (TSR) Polish (TP) Total Production in ounces Revenue Costs: 300,000 $204,000 300,000 $168,000 300,000 $168,000 336000 70000* 0 70,000 $134,000 52,500 50,000 102,500 $65,500 52,500 50,000 102,500 $65,500 105,000* 100,000 205,000 $131,000 CDG costs TCP costs Total costs Weekly gross profit If table cleaner is not processed further, it is allocated 1/3 of the $210,000 of CDG cost, which is equal to 1/3 of the total physical output. " If table cleaner is processed further, total physical output is 1,200,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost. Instructions 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 (2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further (3) Compare the resulting net incomes and comment on management's decision (a)

Answer 1

Ans: Thompson Industrial Products Inc. (TIPI)

A) If table Cleaner is not further processed .

Particulars	Production in Ounces	Production in Units	Price per unit		Amounts
Sales
Floor Shine	600000	20000	$20	$400,000
Table Cleaner	300000	12000	$17	$204,000
					$604,000
Costs
CDG				$210,000
Additional Cost of Floor Shine				$240,000
Total Cost					$450,000
Gross Profit					$154,000

2) If table Cleaner is further processed

Particulars	Production in Ounces	Production in Units	Price per unit		Amounts
Sales
Floor Shine	600000	20000	$20	$400,000
TSR	300000	12000	$14	$168,000
TP	300000	12000	$14	$168,000
Total Revenue					$736,000
Costs
CDG				$210,000
TCP				$100,000
Additional Cost of Floor Shine				$240,000
Total Cost					$550,000
Gross Profit					$186,000

3) Comparing Net incomes and Management Decision of not Further processing the Table cleaner. The net income when table cleaner is Further processed is $186,000 and net income when table cleaner is not Further processed is $154,000. The Increase in the revenue is of $32,000 when table cleaner is Further processed.

Particulars	Don't process Table Cleaner	Process Table Cleaner Further	Net Income Increase or ( Decrease)
Incremental Revenue	$604,000	$736,000	$132,000
Incremental Cost	$450,000	$550,000	$100,000
Total	$154,000	$186,000	$32,000

1. Selling Price of Two Table Products $13 for each 25 Ounces Bottles

Further Processing Cost - $120,000

Profit

Particulars	Production in Ounces	Production in Units	Price per unit		Amounts
Sales
Floor Shine	600000	20000	$20	$400,000
TSR	300000	12000	$13	$156,000
TP	300000	12000	$13	$156,000
Total Revenue					$712,000
Costs
CDG				$210,000
TCP				$120,000
Additional Cost of Floor Shine				$240,000
Total Cost					$570,000
Gross Profit					$142,000

As per the above changes the management decision of not further producing the table cleaner is correct as the gross profit decreases from $12,000.