Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

P7-3A Determine if product should be sold or processed further. Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company's Dargar plant

P7-3A Determine if product should be sold or processed further.
Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company's Dargar 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 converted into a polish with the trade name FloorShine. The additional
processing costs for this conversion amount to $240,000.
FloorShine 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 amounts 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 Table Stain Table
Cleaner Remover (TSR) Polish (TP) Total
Production in ounces 300,000 300,000 300,000
Revenue $204,000 $168,000 $168,000 $336,000
Costs:
CDG costs 70000* 52,500 52,500 105,000 **
TCP costs 0 50,000 50,000 100,000
Total costs 70,000 102,500 102,500 205,000
Weekly gross profit $134,000 $65,500 $65,500 $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 combined 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) Compare the resulting net incomes and comment on management's decision.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(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.
Table Cleaner Not Processed Further
Sales:
FloorShine $400,000
Table cleaner 204,000
Total Revenue $604,000
Costs:
CDG 210,000
Additional costs of FloorShine 240,000
Total costs 450,000
Gross profit $154,000
(a) Determine if management made the correct decision to not process the table cleaner further by doing the following.
(2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further.
Table Cleaner Processed Further
Sales:
FloorShine $400,000
Table Stain Remover 168,000
Table Polish 168,000
Total Revenue $736,000
Costs:
CDG 380,000
Additional costs of FloorShine 85,000
TCP 85,000
Total costs 550,000
Gross profit $186,000
(a) Determine if management made the correct decision to not process the table cleaner further by doing the following.
(3) Compare the resulting net incomes and comment on management's decision.
(b) Compare the resulting net incomes and comment on management's decision.
Don't Process Process Net Income
Table Cleaner Table Cleaner Increase
Further Further (Decrease)
Incremental revenue $204,000 $336,000 $132,000
Incremental costs 0 100,000 100,000
Total $204,000 $236,000 $32,000

1.

After you have completed P7-3A, consider the following additional question.
Assume that the selling price of the two table products after further processing changed to $13
for each 25-ounce bottle and the cost of TCP compound to further process changed to $120,000.

How do these changes impact the decision to process or not process further?

I just need help with this last portion above ^^ Thank you!!

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting concepts and applications

Authors: Albrecht Stice, Stice Swain

11th Edition

978-0538750196, 538745487, 538750197, 978-0538745482

More Books

Students also viewed these Accounting questions

Question

General Purpose of Your Speech Analyzing Your Audience

Answered: 1 week ago

Question

Ethical Speaking: Taking Responsibility for Your Speech?

Answered: 1 week ago