P12-3 Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner pro- cessing 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, 900,000 ounces of chemical input are processed at a cost of $210,000 into 600,000 ounces of floor cleaner and 300,000 ounces of table cleaner. The floor cleaner has no market value until it is con- verted into a polish with the trade name FloorShine. The additional processing costs for this conversion amount to $240,000. Floor Shine sells at $20 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 300,000 ounces of another compound (TCP) to the 300,000 ounces of table cleaner. This joint process will yield 300,000 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 Total Table Cleaner 300,000 $204,000 Table Stain Remover (TSR) 300,000 $168,000 Table Polish (TP) 300,000 $168,000 $336,000 Production in ounces Revenues Costs: CDG costs TCP costs Total costs Weekly gross profit 70,000* 70,000 $134,000 52,500 50,000 102,500 $ 65,500 52,500 50,000 102,500 $ 65,500 105,000** 100,000 205,000 $131,000 *If table cleaner is not processed further, it is allocated 1/3 of the $210,000 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,200,000 ounces. TSR and TP com- bined account for 50% of the total physical output and are each allocated 25% of the CDG cost. Instructions (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. (2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further. (3) Compare the resulting net incomes and comment on management's decision. (b) Using incremental analysis, determine if the table cleaner should be processed further. (CMA adapted) (a) Refer to Learning Objective 4 as well as given information in textbook problem Show work or include formulas in each cell Table Cleaner Not Processed Further Table Cleaner Processed Further (3) Dont Process Table Cleaner Further Process Table Cleaner | Further Net Income Increase (Decrease) Comment (b)
