Question 4Ayayai 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 $207,000 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 $240,000.FloorShine sells at $18 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 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 $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 TableCleaner Table StainRemover (TSR) TablePolish (TP) Total Production in ounces 285,000 285,000 285,000 Revenues $193,800 $159,600 $159,600 $319,200 Costs: CDG costs 69,000* 51,750 51,750 103,500** TCP costs 0 50,000 50,000 100,000 Total costs 69,000 101,750 101,750 203,500 Weekly gross profit $124,800 $57,850 $57,850 $115,700 *If table cleaner is not processed further, it is allocated 1/3 of the $207,000 of CDG cost, which is equal to 1/3 of the total physical output.**If table cleaner is processed further, total physical output is 1,140,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost. Determine if management made the correct decision to not process the table cleaner further by doing the following.(1) Calculate the company's total weekly gross profit assuming the table cleaner is not processed further.Total weekly gross profit$(2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further.Total weekly gross profit$(3) Compare the resulting net incomes and comment on management's decision.Management made thedecision by choosing to not process table cleaner further.

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Answered: Determine if management made the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question 4

Ayayai 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 $207,000 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 $240,000.

FloorShine sells at $18 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 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 $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 Cleaner		Table Stain Remover (TSR)		Table Polish (TP)		Total
Production in ounces	285,000			285,000		285,000
Revenues	$193,800			$159,600		$159,600		$319,200
Costs:
CDG costs	69,000	^*		51,750		51,750		103,500	**
TCP costs	0			50,000		50,000		100,000
Total costs	69,000			101,750		101,750		203,500
Weekly gross profit	$124,800			$57,850		$57,850		$115,700

*If table cleaner is not processed further, it is allocated 1/3 of the $207,000 of CDG cost, which is equal to 1/3 of the total physical output.
**If table cleaner is processed further, total physical output is 1,140,000 ounces. 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 gross profit assuming the table cleaner is not processed further.
Total weekly gross profit
$
(2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further.
Total weekly gross profit
$
(3) Compare the resulting net incomes and comment on management's decision.
Management made the
decision by choosing to not process table cleaner further.

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