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, 931,500 ounces of chemical input are processed at a cost of $207,300 into 621,000 ounces of floor cleaner and 310,500 ounces of table cleaner. The floor cleaner has no market value until it is converted into a polish with the trade name Floor Shine. The additional processing costs for this conversion amount to $257,400. Floor Shine sells at $20 per 30-ounce bottle. The table cleaner can be sold for $21 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 310,500 ounces of another compound (TCP) to the 310,500 ounces of table cleaner. This joint process will yield 310,500 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $106,000. 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. Table Cleaner 310,500 $260,820 Process Further Table Stain Remover Table (TSR) Polish (TP) Total 310,500 310,500 $186,300 $186,300 $372,600 Production in ounces Revenues Costs: CDG costs TCP costs Total costs Weekly gross profit 69,100 51,825 53,000 51,825 103,650 ** 53,000 106,000 104,825 209,650 $81,475 $162,950 69,100 $191,720 104,825 $81,475 *If table cleaner is not processed further, it is allocated 1/3 of the $207,300 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,242,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

Answer 1

1.

Compute total weekly profit if the table cleaner is not processed further as follows:

$9k=$

2.

Compute total weekly profit if the table cleaner is processed further as follows:

$9k=$

3.

Prepare incremental analysis determining if the table should be processed further as follows:

$2Q==$

As the net income of the company will increase if the table should be processed further thus, the decision of management was wrong.