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, 873,000 ounces of chemical input are processed at a cost of $207,000 into 582,000 ounces of floor cleaner and 291,000 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 $257,200.

FloorShine sells at $19 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 291,000 ounces of another compound (TCP) to the 291,000 ounces of table cleaner. This joint process will yield 291,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $110,000. 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 Cleaner				Table Stain Remover (TSR)		Table Polish (TP)		Total
Production in ounces		291,000				291,000		291,000
Revenues		$221,160				$174,600		$174,600		$349,200
Costs:
CDG costs		69,000	*			51,750		51,750		103,500	**
TCP costs		0				55,000		55,000		110,000
Total costs		69,000				106,750		106,750		213,500
Weekly gross profit		$152,160				$67,850		$67,850		$135,700

*If table cleaner is not processed further, it is allocated 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 1,164,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

(a)

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.

Total weekly gross profit

$

(2) Calculate the company’s total weekly gross profit assuming the table cleaner is processed further.

Total weekly gross profit

$

(3) Compare the resulting net incomes and comment on management’s decision.

Management made the ___?_____ wrongright decision by choosing to not process table cleaner further.

(4)

Using incremental analysis, determine if the table cleaner should be processed further. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Don't Process Table Cleaner Further Process Table Cleaner Further Net Income Increase (Decrease) Incremental revenue Incremental costs Totals

Answer 1

Initial cost-20700 Table cleanes floor Cleaner Units 291000 Solooo ouncer Addprocessing cost - $ 2,57,200 & lapes 25ounce floor shine Add lost alooo & 19 per 30 ounce 1/ojobo 0,ovo Table 1 SkinRemover Ounce polish I 29100 ounce 291000 ounce Sale value $15 per 25 ounce bottle 1 Total sale value (582000X19) • 3,68,600 30 Cost Add Initial cost - 207000 : 257200 8 $95600 COM