Problem 7-3A Part Level Submission) (Video) (a) Problem 7-3A Part Level Submissi
ID: 2548249 • Letter: P
Question
Problem 7-3A Part Level Submission) (Video)
(a)
Problem 7-3A Part Level Submission) (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, 886,500 ounces of chemical input are processed at a cost of $209,100 into 591,000 ounces of floor cleaner and 295,500 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 $252,100.FloorShine sells at $18 per 30-ounce bottle. The table cleaner can be sold for $19 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 295,500 ounces of another compound (TCP) to the 295,500 ounces of table cleaner. This joint process will yield 295,500 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $106,000. 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 295,500 295,500 295,500 Revenues $224,580 $177,300 $177,300 $354,600 Costs: CDG costs 69,700 * 52,275 52,275 104,550 ** TCP costs 0 53,000 53,000 106,000 Total costs 69,700 105,275 105,275 210,550 Weekly gross profit $154,880 $72,025 $72,025 $144,050
*If table cleaner is not processed further, it is allocated 1/3 of the $209,100 of CDG cost, which is equal to 1/3 of the total physical output.
**If table cleaner is processed further, total physical output is 1,182,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.
Explanation / Answer
Solution:
1) Calculation of the company's Total Weekly Gross Profit assuming the Table Cleaner is not Processed Further:
2) Calculation of the Company's Total Weekly Gross Profit Assuming the Table Cleaner is Processed Further:
3) Comparing the Resulting Net Incomes and Commenting on Management's Decision:
The Management have to Processed the Table Cleaner further because they would have made more of $24,020.
Particulars Amount Total Amount Sales: Floor Shine $354,600 Table Cleaner $224,580 Total Sales $579,180 Costs: CDG Costs $209,100 Additional Floor Shine $252,100 Total Costs $461,200 Gross Profit $117,980