P7.38A (Lo 4) Miramichi Industrial Products Co. is a diversified industrial-clea

Question

P7.38A (Lo 4) Miramichi Industrial Products Co. is a diversified industrial-cleaner processing company e company's main plant produces fwo products) a table cleaner and a floor cleaner. They are made from a common set of chemical inputs (calied CDG).Each week, the company processes 27,000 litres of chemical input ata cost of $210,.000 into 18,000 litres of floor cleaner and 9,000 litres of tabte cleaner. e floor cleaner has no márket value until it is converted into a polish with the trade name FloorShine, The additional processing costs for this conversion total $250,000. FloorShine sells at $20 per one-fitre bottle, The table cleaner can be sold for S25 per one-litre bottle However, the table cleaner can be converted into two other products by adding 9,000 litres oj another tres each of compound (TCP) to the 9,000 litres of table cleaner. This joint process will yield table stain remover and table polish. The additional processing costs for this process are S120,000 Both The company decided not to process the table cleaner into table stain remover and table polish products can be sold for $20 per one-litre bottle. based on the following analysis: Process Further Table Polish Table Table Stain Remover Total Production in litres Revenue Costs Cleaner (9,000) $225,000 9,000 $180,000 9,000 $180,000 $360,000 70,000 0 70,000 52,500 60,000 112,500 S 67,500 52,500 60,000 112,500 S67,500 105,000b 120,000 225,000 $135,000 CDG costs TCP costs Total costs Weekly gross profit $155.000 he table cleaner is not processed further, it is allocated one-third of the $210,000 of CDG cost, which is equal to one-third of the total physical output. "If the table cleaner is processed further, the total physical output is polish combined account for 50% of the total physical output and are each allocated 25% of the CDG cost. 36,000 litres. Table stain remover and table

Explanation / Answer

a1 Sales Floorshine(20*18000) 360000 Table Cleaner(25*9000) 225000 Total Sales 585000 Costs : CDG Costs 210000 Additional processing costs for floorshine 250000 Total Cost 460000 Gross Profit 125000 a2 Sales Table Stain Remove (9000*20) 180000 Table Polish (9000*20) 180000 Floorshine 360000 Total Sales 720000 Costs: CDG Costs 210000 Additional processing costs for floorshine 250000 TCP Costs 120000 Total Costs 580000 Gross Profit 140000 Management should process the table cleaner further because this would lead to increase in gross profit of $ 15000 b Don’t process table cleaner further Process table cleaner further Net Income Increase (Decrease) Incremental Revenue 225000 360000 135000 Incremental costs 120000 120000 Total 15000 This also prove the management should process the table further to earn additional gross profit of $ 15000

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