Question

Assuming decisions are made based on the quanitive information, the company should produce which products from the industrial wax?

11. Clean N Shine Co. manufactures waxes for autos. From the basic mixing process an industrial wax is produced that can be sold for $6.00 per pound. The average cost to produce this industrial wax was $3.50 per pound. This wax can be processed further to obtain three grades of fine auto waxes. Below are data relevant to last month's production: Per Unit (1 lb.) Separate Costs Product After Split-off Total Costs Basic Goo $4.00 $ 7.50 Shiny Wax 6.50 10.00 Glossy Stuff 8.00 11.50 Sales Price $ 7 12 15 Assuming decisions are made based on this quantitative information, the company should produce which products from the industrial wax? a. Produce all three products (Basic Goo, Shiny Wax, Glossy Stuff) b. Produce only Shiny Wax and Glossy Stuff. c. Produce only Glossy Stuff. d. Produce none of the auto waxes, sell only industrial wax.

Answer 1

Products	Separate cost	Sale price of separate product	Profit / loss		Joint cost	Sale price of joint product	Profit / loss
Industrial wax	3.5	6	2.5		3.5	6	2.5
Basic Goo	4	1	-3		7.5	7	-0.5
Shiny wax	6.5	6	-0.5		10	12	2
Glossy Stuff	8	9	1		11.5	15	3.5
a	If Clean N' Shine Co. produces all 3 products Basic Goo, Shiny Wax & Glossy stuff, it would incur losses on Basic Goo & Shiny wax,
	it incurrs profit on only Glossy stuff
b	If Clean N' Shine Co. produces only Shiny wax & Glossy stuff it would end up realizing profit on both the products jointly with Industrial wax.
	If compared on individual product level Shiny wax would incur loss but Glossy stuff would realize profit.
c	Producing only Glossy stuff would be beneficial to Clean N'Shine.
d	Company considers to produce only Industrial Wax the total profit realized would be lesser as compared to if Shiny wax and Glossy stuff
	were also produced