Miramichi Industrial Products Co. is a diversified industrial-cleaner processing company. The companys main plant produces two products: a table cleaner and a floor cleaner. They are made from a common set of chemical inputs (called CDG). Each week, the company processes 30,600 litres of chemical input at a cost of $208,800 into 20,400 litres of floor cleaner and 10,200 litres 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 total $254,200. FloorShine sells at $20 per one-litre bottle. The table cleaner can be sold for $25 per one-litre bottle. However, the table cleaner can be converted into two other products by adding 10,200 litres of another compound (TCP) to the 10,200 litres of table cleaner. This joint process will yield 10,200 litres each of table stain remover and table polish. The additional processing costs for this process are $129,400. Both table products can be sold for $22 per one-litre bottle. The company decided not to process the table cleaner into table stain remover and table polish based on the following analysis:

Process Further

Table CleanerTable Stain RemoverTable PolishTotal

Production in litres

(10,200)

10,200

10,200

Revenue

$255,000

$224,400

$224,400

$448,800

Costs:

CDG costs69,600a52,200 52,200 104,400b

TCP costs

0

64,700

64,700

129,400

Total costs

69,600

116,900

116,900

233,800

Weekly gross profit

$185,400

$107,500

$107,500

$215,000

a If the table cleaner is not processed further, it is allocated one-third of the $208,800 of CDG cost, which is equal to one-third of the total physical output. b If the table cleaner is processed further, the total physical output is 40,800 litres. Table stain remover and table polish combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

Do the following to determine whether management made the correct decision by not processing the table cleaner further.

(1) Calculate the company's total weekly gross profit assuming the table cleaner is not processed further.

Companys total weekly gross profit $

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

Companys total weekly gross profit $

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

Management made the correctincorrect decision by choosing to not process table cleaner further.

Using incremental analysis, determine whether the table cleaner should be processed further. (If an amount reduces the net income then enter with a negative sign preceding the number, e.g.-15,000 or parenthesis, e.g. (15,000).)

Don't Process Further Process FurtherNet Income Increase (Decrease)

Incremental revenues$ $ $

Incremental costs

Totals$ $ $

The table cleaner shouldshould not be processed further.