Sandhill Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The companys Dargan plant produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week, 891,000 ounces of chemical input are processed at a cost of $ 212,400 into 594,000 ounces of floor cleaner and 297,000 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 $ 241,800. FloorShine sells at $ 21 per 30-ounce bottle. The table cleaner can be sold for $ 20 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 297,000 ounces of another compound (TCP) to the 297,000 ounces of table cleaner. This joint process will yield 297,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $ 109,000. 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 Cleaner				Table Stain Remover (TSR)		Table Polish (TP)		Total
Production in ounces		297,000				297,000		297,000
Revenues		$ 237,600				$ 178,200		$ 178,200		$ 356,400
Costs:
CDG costs		70,800	*			53,100		53,100		106,200	**
TCP costs		0				54,500		54,500		109,000
Total costs		70,800				107,600		107,600		215,200
Weekly gross profit		$ 166,800				$ 70,600		$ 70,600		$ 141,200

*If table cleaner is not processed further, it is allocated 1/3 of the $ 212,400 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,188,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

(a)

Correct answer icon

Your answer is correct.

Determine if management made the correct decision to not process the table cleaner further by doing the following. (1) Calculate the companys total weekly gross profit assuming the table cleaner is not processed further.

Total weekly gross profit

$

(2) Calculate the companys total weekly gross profit assuming the table cleaner is processed further.

Total weekly gross profit

$

(3) Compare the resulting net incomes and comment on managements decision.

Management made the wrongright decision by choosing to not process table cleaner further.

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(b)

Using incremental analysis, determine if the table cleaner should be processed further. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Dont Process Table Cleaner Further		Process Table Cleaner Further		Net Income Increase (Decrease)
Incremental revenue		$		$		$
Incremental costs
Totals		$		$		$

Table cleaner should/should not be processed further.