Question 4 ABC Chemical Company (ABC) produces three products A, B and C. Each month, all three products are under a common process costing $180,000 (share equally by each product) and produces 90,000 gallons (30,000 gallons of each) of chemical. All three products have no market value until the additional processes. The additional costs for such conversions are $100,000, $80,000 and $220,000 for A, B and C respectively. Each of these products can be sold as is, or each can be processed further and sold for a higher price. Product A, B and C can be sold for $10, $8 and $12 per gallon. ABC is considering the possibility to process further of product B and C to product B-plus and C- plus. This will incur new variable and fixed costs for additional capacity. The additional processing costs for this process is $150,000 and $200,000. Both products can be sold for $15 per gallon. Analysis reveals the following percentages of variable costs in each component. Products Common process cost Additional costs on A 50% 60% additional processes Products Additional processing costs B C 50% 50% 40% 40% B-plus 60% C-plus 60% Required: (a) Calculate ABC's total monthly gross profit (hint: sales - cost of goods sold) assuming there is no processed further and all products can be sold. Show your workings. (3 marks) (b) Using incremental analysis, determine and explain to ABC whether they should process further or not. Show your alternatives and indicate the differences. (9 marks)