Problem 12-3 Ayayai 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, 945,000 ounces of chemical input are processed at a cost of $213,000 into 630,000 ounces of floor cleaner and 315,000 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 $241,200. FloorShine sells at $20 per 30-ounce bottle. The table cleaner can be sold for 21 per 25 ounce bottle. However, the table cleaner can be converted into two other products by adding 315,000 ounces of another compound (TCP) to the 315,000 aunces of table clcancr. This joint process will yield 315,000 punccs cach of table stain remaver (TSR) and table polish (TP). The additional processing costs for this process amount to $102,000. Both table products can be sold for s15 per 25- aunce battle. The company decided not to process the table cleaner into TSR and TP based on the following analysis. Process Further Table Stain Remover Table (TSR) Polish (TP) 315,000 315,000 $189,000 $189,000 Table Cleaner 315,000 $264,600 Total $378,000 Production in ounces Revenues Costs: CDG costs TCP costs Total costs Weekly gross profit 71,000 71.000 53,250 51,000 104,250 $84,750 53,250 51,000 104,250 $84,750 106,500 ** 102,000 208,500 $169,500 $ 193,600 *If table cleaner is not processed further, it is allocated 1/3 of the 213,000 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,260,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost. 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 grass profit assuring the table cleaner is not processed further. Total weekly gross profit (2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further. Total weekly gross profit (3) Compare the resulting net incomes and comment on management's decision. Management made the decision by choosing to not process table cleaner further. Using incremental analysis, determine if the table cleaner should be processed further. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Don't Process Table Cleaner Further Process Table Cleaner Further Net Income Increase (Decrease) Incremental revenue $ Incremental costs Totals
