P7-50B Bonita Household Products Co. is a diversified household-cleaner processi
ID: 2553907 • Letter: P
Question
P7-50B Bonita Household Products Co. is a diversified household-cleaner processing company. The company's (so 4) St. Lawrence plant produces two products from a common set of chemical inputs (TLC); a glass cleaner and a metal Determine whether a cleaner. Each week 30,000 litres of chemical input are processed at a cost of $200,000 into 20,000 litres of metal cleaner product should be sold and 10,000 litres of glass cleaner. The metal cleaner has no market value until it is converted into a polish with the trade or processed fureher name MetalShine. The additional processing costs for this conversion total $270,000. MetalShine sells for $15 per 750-m bottle. The glass cleaner can be sold for $24 per 750-ml bottle. However, the glass cleaner can be converted into two othe products by adding 10,000 litres of another compound (MST) to the 10,000 litres of glass cleaner. This joint process wil yield 10,000 litres each of plastic cleaner and plastic polish. The additional processing costs for this process total $140,000. Both plastic products can be sold for $20 per 750-ml bottle. The company decided not to process the glass cleaner into plastic cleaner and plastic polish based on the following analysis: Process Further Glass Plastic Polish Plastic Total Cleaner Cleaner Production in litres (10,000) 10,000 10,000 Revenue TLC cost MST cost Total costs Weekly gross profit $190,000 240,000$200,000 $200,000 $400,000 80,000 0 70,000 70,000140,000 50,000' 40,000 40,000 50.000 110,000 110,000 220,000 90,000 90,000 $180,000 "If the glass cleaner is not processed further, it is allocated one quarter of the $200,000 of TLC cost, because it represents one quarter of the total physical output. b?f the glass cleaner is processed further, the total physical output is 40 000 litres. Plastic cleaner and plastic polish combined account for 40% of the total physical output and are each allocated 20% of the TLC cost. Instructions (a) Do the following to determine iwhether management made the correct decision by not processing the glass cleaner further 1. Calculate the company's total weekly gross profit assuming the glass cleaner is not processed further 2. Calculate the company's total weekly gross profit assuming the glass cleaner is processed further. 3. Compare the resulting net incomes and comment on management's decision. 2. Gross profit $323,333 (b) Using incremental analysis, determine whether the glass cleaner should be processed further (adapted from CMA Canada, now CPA Canada)Explanation / Answer
a. 1. Glass Cleaner not processed further:
2. If the glass cleaner is processed further:
3. As the weekly gross profit on further processing of the glass cleaner is greater by $ 73,334 than the weekly gross profit without processing the glass cleaner further, the management should sell the glass cleaner after processing further into the plastic cleaner and the plastic polish.
$ $ Weekly Sales MetalShine ( 20,000 / 0.75 x $ 15) 400,000 Glass Cleaner ( 10,000 / 0.75 x $ 24) 320,000 Total Weekly Revenues 720,000 Costs TLC 200,000 Additional Costs for MetalShine 270,000 470,000 Weekly Gross Profit 250,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.