Question

CES NEXT Pronghorn Industrial Products Inc. is a diversified Industrial cleaner processing company. The company's Dargan plant produces two products: a table cener and a floor cener from a common of chemical Inputs (CDG). Each week, 855,000 ounces of chemical Input are processed at a cost of $207,000 into 570,000 ounces of Moor cleaner and 285.000 ounces of table deaner. The floor deaner 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 $258,700 FloorShine sells at 521 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 unces of another compound (TCP) to the 285,000 ounces of table cleaner. This joint process will yield 285,000 on each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $104,000. Both table products can be sold for sis per 25-ounce bottle The company decided not to process the table deaner into TSR and TP based on the following analysis. Table Process Further Table Stain Remover Table (TSR) Polish (TP) 285.000 $171,000 Production in ounces 285.000 $342.000 69,000 51,750 CDG costs TC costs Total costs $1,750 52.000 103,750 $67,250 103,500 - 104,000 207,500 $134,500 103,750 Weekly gross profit If table cleaner is not processed further is located 1/3 of the $207,000 of CDG cost, which is equal to 1/3 of the total physical output **if table cleaner is processed further, total physical output is 1,140,000 ounces. TSR and TP combined account for 50 of the total physical output and are each located 25% of the COG COM Determine if management made the correct decision to not process the table cleaner further by doing the following (i) Calculate the company's total weekly gross profit assuming the table degner is not processed further Total weekly gross profit (2) Calculate the company's total weekly gross prontassuming the table deaner i processed further Total wey gross profit (3) Compare the resulting net incomes and comment on management's decision decision by choosing to not process table cleaner further

Answer 1

1. Total Company Profit when not Processed further = 149,900

2. Total Company Profit when Processed further = 171,300

3. Wrong decision

	Don’t Process Further			Process Further
	Floor Shine	Table Cleaner		Floor Shine	Table Stain Remover	Table Polish
Production in Ounces	570,000	285,000		570,000	285,000	285,000
Revenue	399,000	216,600		399,000	171,000	171,000
Costs
CDG Costs	138,000	69,000		103,500	51,750	51,750
TCP Costs	258,700	0		258,700	52,000	52,000
Total Costs	396,700	69,000		362,200	103,750	103,750
Weekly Gross Profit	2,300	147,600		36,800	67,250	67,250
Total Gross Profit	149,900			171,300

	Don’t Process Further	Process Further	Net Income Increase
Incremental Revenue	615,600	741,000	125,400
Incremental Cost	465,700	569,700	104,000
Totals	149,900	171,300	21,400