P7-3A Determine if product should be sold or processed further. Thompson Industr
ID: 2419438 • Letter: P
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P7-3A Determine if product should be sold or processed further. Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company's Dargar plant produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week 900,000 ounces of chemical input are processed at a cost of $210,000 into 600,000 ounces of floor cleaner and 300,000 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 $240,000. FloorShine sells at $20 per 30-ounce bottle. The table cleaner can be sold for $17 per 25-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 yield 300,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amounts to $100,000. Both table products can be sold for $14 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 Table Stain Table Cleaner Remover (TSR) Polish (TP) Total Production in ounces 300,000 300,000 300,000 Revenue $204,000 $168,000 $168,000 $336,000 Costs: CDG costs 70000* 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 $134,000 $65,500 $65,500 $131,000 *If table cleaner is not processed further, it is allocated 1/3 of the $210,000 of CDG cost, which is equal to 1/3 of the total physical output. ** If table cleaner is processed further, total physical output is 1,200,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost. Instructions (a) 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. (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. (b) Compare the resulting net incomes and comment on management's decision. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . (a) 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. Table Cleaner Not Processed Further Sales: FloorShine ? Table cleaner ? Total Revenue ? Costs: CDG Value Additional costs of FloorShine Value Total costs ? Gross profit ? (a) Determine if management made the correct decision to not process the table cleaner further by doing the following. (2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further. Table Cleaner Processed Further Sales: FloorShine Value Table Stain Remover Value Table Polish Value Total Revenue ? Costs: CDG Value Additional costs of FloorShine Value TCP Value Total costs ? Gross profit ? (a) Determine if management made the correct decision to not process the table cleaner further by doing the following. (3) Compare the resulting net incomes and comment on management's decision. (b) Compare the resulting net incomes and comment on management's decision. Don't Process Process Net Income Table Cleaner Table Cleaner Increase Further Further (Decrease) Incremental revenue Value Value Value Incremental costs Value Value Value Total ? ? ? 1. After you have completed P7-3A, consider the following additional question. Assume that the selling price of the two table products after further processing changed to $13 for each 25-ounce bottle and the cost of TCP compound to further process changed to $120,000. How do these changes impact the decision to process or not process further? P7-3A Determine if product should be sold or processed further. Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company's Dargar plant produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week 900,000 ounces of chemical input are processed at a cost of $210,000 into 600,000 ounces of floor cleaner and 300,000 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 $240,000. FloorShine sells at $20 per 30-ounce bottle. The table cleaner can be sold for $17 per 25-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 yield 300,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amounts to $100,000. Both table products can be sold for $14 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 Table Stain Table Cleaner Remover (TSR) Polish (TP) Total Production in ounces 300,000 300,000 300,000 Revenue $204,000 $168,000 $168,000 $336,000 Costs: CDG costs 70000* 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 $134,000 $65,500 $65,500 $131,000 *If table cleaner is not processed further, it is allocated 1/3 of the $210,000 of CDG cost, which is equal to 1/3 of the total physical output. ** If table cleaner is processed further, total physical output is 1,200,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost. Instructions (a) 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. (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. (b) Compare the resulting net incomes and comment on management's decision. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . (a) 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. Table Cleaner Not Processed Further Sales: FloorShine ? Table cleaner ? Total Revenue ? Costs: CDG Value Additional costs of FloorShine Value Total costs ? Gross profit ? (a) Determine if management made the correct decision to not process the table cleaner further by doing the following. (2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further. Table Cleaner Processed Further Sales: FloorShine Value Table Stain Remover Value Table Polish Value Total Revenue ? Costs: CDG Value Additional costs of FloorShine Value TCP Value Total costs ? Gross profit ? (a) Determine if management made the correct decision to not process the table cleaner further by doing the following. (3) Compare the resulting net incomes and comment on management's decision. (b) Compare the resulting net incomes and comment on management's decision. Don't Process Process Net Income Table Cleaner Table Cleaner Increase Further Further (Decrease) Incremental revenue Value Value Value Incremental costs Value Value Value Total ? ? ? 1. After you have completed P7-3A, consider the following additional question. Assume that the selling price of the two table products after further processing changed to $13 for each 25-ounce bottle and the cost of TCP compound to further process changed to $120,000. How do these changes impact the decision to process or not process further?Explanation / Answer
1) Calculate the company's total weekly gross profit assuming the table cleaner is not processed further.
(3) Compare the resulting net incomes and comment on management's decision.
THE COMPANY SHOULD FUTHER PROCESS TABLE CLEANER INTO TSR & TPR AS RESULT PROFIT UNDER (2) OPITION IS GREATER.
1) Calculate the company's total weekly gross profit assuming the table cleaner is not processed further.
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