Problem 12-3 Bramble 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, 895,500 ounces of chemical input are processed at a cost of $208,500 into 597,000 ounces of floor cleaner and 298,500 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 $260,000. FloorShine sells at $19 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 298,500 ounces of another compound (TCP) to the 298,500 ounces of table cleaner. This joint process will yield 298,500 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $103,000. Both table products can be sold for $15 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 Remover Table (TSR) Polish (TP) 298,500 298,500 $179,100 $179,100 Table Cleaner 298,500 $250,740 Total $358,200 Production in ounces Revenues Costs: CDG costs TCP costs Total costs Weekly gross profit 69,500 * 52,125 51,500 103,625 $75,475 52,125 51,500 103,625 $75,475 104,250 ** 103,000 207,250 $150,950 69,500 $181,240 *If table cleaner is not processed further, it is allocated 1/3 of the $208,500 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,194,000 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 gross profit assuming 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
