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eddiecas
eddiecas
15.03.2020 • 
Business

Monty Industrial Products Inc. 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, 855,000 ounces of chemical input are processed at a cost of $207,600 into 570,000 ounces of floor cleaner and 285,000 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 $257,800.

FloorShine sells at $20 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 285,000 ounces of another compound (TCP) to the 285,000 ounces of table cleaner. This joint process will yield 285,000 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $103,000. 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 285,000 285,000 285,000
Revenues $216,600 $171,000 $171,000 $342,000
Costs:
CDG costs 69,200 * 51,900 51,900 103,800 **
TCP costs 0 51,500 51,500 103,000
Total costs 69,200 103,400 103,400 206,800
Weekly gross profit $147,400 $67,600 $67,600 $135,200

*If table cleaner is not processed further, it is allocated 1/3 of the $207,600 of CDG cost, which is equal to 1/3 of the total physical output.
**If table cleaner is processed further, total physical output is 1,140,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

Partially correct answer. 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 $Entry field with incorrect answer
406600

(2) Calculate the company’s total weekly gross profit assuming the table cleaner is processed further.

Total weekly gross profit $Entry field with incorrect answer
61800

(3) Compare the resulting net incomes and comment on management’s decision.

Management made the Entry field with correct answer decision by choosing to not process table cleaner further.

SHOW SOLUTION
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Incorrect answer. Your answer is incorrect. Try again.

Using incremental analysis, determine if the table cleaner should be processed further. (If amount decreases net income then enter the amount 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 $Entry field with incorrect answer
342000
$Entry field with incorrect answer
558000
$Entry field with incorrect answer
238000
Incremental costs Entry field with incorrect answer
69200
Entry field with incorrect answer
276000
Entry field with incorrect answer
206800
Totals $Entry field with incorrect answer
411200
$Entry field with incorrect answer
834000
$Entry field with incorrect answer
444800

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