Mesa Industrial Products Co. (MIPC) is a diversified industrial-cleaner processi
ID: 2434256 • Letter: M
Question
Mesa Industrial Products Co. (MIPC) is a diversified industrial-cleaner processing company. The company's verde plant produces two products: a table cleaner and a floor cleaner from a common set of chemical imputs (CDG). Each week 900,000 ounces of chemical input are processed at a cost of $210,ooo into 600,000 ounces of floor cleaner and 300,000 ounces of table clearner. 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 250,000. FloorShine sells at $20 per 30-ounce bottle. The table cleaner can be sold for $25 per 30-ounce bottle. However, the table cleaner can be converted into two other products by adding 300,000 ounces of another compound (TCP) to the 300,000 ounces of table cleaner. This joint process will yeild 300,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to 100,000. Both table products can be sold for $18 per 30- ounce bottle. The company decided not to process the table cleaner in to TSR and TP based on the following analysis.Production in ounces TC 300,000 TSR 300,000 TP 300,000 Total
Revenue 250,000 180,000 180,000 360,000
Costs
CDG costs 70,000 52,500 52,500 105,000
TCP costs 0 50,000 50,000 100,000
Total costs 70,000 102,500 102,500 205,000
Weekly gross profit 180,000 77,500 77,500 155,000
If table cleaner is not processed further it is allocated 1/3 of the 210,000 CDG, which is equal to 1/3 of the total physical output.
If table cleaner is processed further, total physical output is 1,200,000 onces, 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 grosss profit assuming the table cleaner is not processed further.
2. Calculate the company's total weekly gross profit assuming the table cleaner is processed further.
3. Compare the resulting net incomes and comment on management's decision
Management made the ____________ decision by choosing to not process the table cleaner further. Using Incremental analysis, determine if the table cleaner should be processed further.
Dont'Process Table Process Table Net Income
Cleaner further Cleaner further Increase/Decrease
Incremental Revenues ? ? ?
Incremental Costs ? ? ?
Totals ? ? ?
Explanation / Answer
$250,000 $360,000 $110,000 0 100,000 (100,000) $250,000 $260,000 10,000