Question
Oriole 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
Oriole 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, 904,500 ounces of chemical input are processed at a cost of $210,300 into 603,000 ounces of floor cleaner and 301,500 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 $255,500. Floor Shine sells at $22 per 30-ounce bottle. The table cleaner can be sold for $17 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 301,500 ounces of another compound (TCP) to the 301,500 ounces of table cleaner. This joint process will yield 301,500 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $100,000. Both table products can be sold for $14 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 301,500 301,500 301,500 Revenues $205,020 $168,840 $168,840 $337,680 Costs: CDG costs 70,100 52,575 52,575 105,150 TCP costs 0 50,000 50,000 100,000 Total costs 70,100 102,575 102,575 205,150 Weekly gross profit $134,920 $66,265 $66,265 $132.530
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