Problem 20-3A (Part Level Submission) Thompson Industrial Products Inc. (TIPI) i

Question

Problem 20-3A (Part Level Submission) Thompson Industrial Products Inc. (TIPI) 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, 940,500 ounces of chemical input are processed at a cost of $210,300 into 627,000 ounces of floor cleaner and 313,500 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 $254,800 FloorShine sells at $20 per 30-ounce bottle. The table cleaner can be sold for $20 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 313,500 ounces of another compound (TCP) to the 313,500 ounces of table cleaner. This joint process will yield 313,500 ounces each of table stain remover (TSR) and table polish (TP) The additional processing costs for this process amount to $106,000. 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 Stain Remover (TSR) Table Polish (TP) Table Total Cleaner 313,500 $250,800 313,500 Production in ounces Revenues Costs 313,500 $188,100 $188,100 $376,200 70,100 52,575 53,000 105,575 $82,525 CDG costs 52,575 105,150* TCP costs 53,000 106,000 105,575 211,150 $82,525 $165,050 Total costs 70,100 Weekly gross profit $180,700 If table cleaner is not processed further, it is allocated 1/3 of the $210,300 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,254,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

Explanation / Answer

A. 1.

A.2.

Total costs

Gross profit

$571,100

$223,100

A.3. management should have processed the table cleaner further because they would make $19,400 more profit if they process the table cleaner further. Management made the wrong decision by choosing to not process table cleaner further.

Sales: Floors shine{(627,000/30)×$20} $418,000 Table cleaner{(313,500/25)×$20} $250,800 Total sales $668,800 Costs: CDG costs $210,300 Additional costs of floorshine $254,800 Total cost $465,100 Gross profit $203,700

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