Question

Problem 7-3A (Video) Thompson Industrial Products Inc. (TIPI) 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, 913,500 ounces of chemical input are processed at a cost of $210,600 into 609,000 ounces of floor cleaner and 304,500 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 $253,200. FloorShine sells at $22 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 304,500 ounces of another compound (TCP) to the 304,500 ounces of table cleaner. This joint process will yield 304,500 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $104,000. 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 304,500 304,500 304,500 Revenues $243,600 $182,700 $182,700 $365,400 Costs:    CDG costs 70,200 * 52,650 52,650 105,300 **    TCP costs 0 52,000 52,000 104,000      Total costs 70,200 104,650 104,650 209,300 Weekly gross profit $173,400 $78,050 $78,050 $156,100 *If table cleaner is not processed further, it is allocated 1/3 of the $210,600 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,218,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

Your answer is partially correct. Try again. 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 wrongright decision by choosing to not process table cleaner further. LINK TO TEXT

Your answer is correct. 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).) Don’t Process Table Cleaner Further Process Table Cleaner Further Net Income Increase (Decrease) Incremental revenue $ $ $ Incremental costs    Totals $ $ $ Table cleaner shouldshould not be processed further.

Answer 1

	Weekly gross profit Table cleaner NOT processed further	Weekly gross profit Table cleaner is processed further
Sales revenue:
Floor cleaner	$446,600 (609,000 / 30 = 20,300 x $22)	$446,600
Table cleaner	$243,600[304,500/25*$20]
Table Stain Remover		$182,700[304,500/25 ounce per bottle*$15]
Table Polish		$182,700
Total Revenue	$690,200[446600+243600]	$812,000 [$446,600+182,700+182,700]
Costs:
CDG Costs	$210,600	$210,600
Floor cleaner additional processing costs	$253,200	$253,200
TCP additional costs		$104,000
Total Costs	$463,800	$567,800[$210,600+$253,200+$104,000]
Weekly gross profit	$226,400[$690,200-$463,800]	$244,200[$812,000-$567,800]

1. Weekly gross profit if not further processed = $226,400

2. Thus, weekly gross profit if it is further processed is $244,200

3. as we can see that gross profit in further processed column is higher than in not to further process column.

So management made the wrong decision.

	Dont process further	process further	Increase(decrease)
Incremental revenue (from above table)	0	$121,800[$812,000-690,200]	$121,800
Incremental Cost	0	($104,000) [$567,800-$463,800]	($104,000)
Total	0	$17,800	$17,800

Yes, it should be processed further

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