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Carla Vista Industrial Products Inc. is a diversified industrial-cleaner processing company. The company's Dargan plant produces two products: a table cleaner and a floor
Carla Vista Industrial Products Inc. 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, 886,500 ounces of chemical input are processed at a cost of $209,400 into 591,000 ounces of floor cleaner and 295,500 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 $246,700. FloorShine sells at $18 per 30-ounce bottle. The table cleaner can be sold for $18 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 295,500 ounces of another compound (TCP) to the 295,500 ounces of table cleaner. This joint process will yield 295,500 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 Stain Table Cleaner Remover (TSR) Table Polish (TP) Total Production in ounces 295,500 295,500 295,500 Revenues $212,760 $177,300 $177,300 $354,600 Costs: CDG costs 69,800 52,350 52,350 104,700 TCP costs 0 55,000 55,000 110,000 Total costs 69,800 107,350 107,350 214,700 Weekly gross profit $142,960 $69,950 $69,950 $139,900 *If table cleaner is not processed further, it is allocated 1/3 of the $209,400 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,182,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.
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