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P7-3A Determine if product should be sold or processed further.
Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company's Dargar plant
produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week 900,000
ounces of chemical input are processed at a cost of $210,000 into 600,000 ounces of floor cleaner and 300,000 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 $20 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 300,000 ounces of another compound (TCP) to the 300,000 ounces
of table cleaner. This joint process will yield 300,000 ounces each of table stain remover (TSR) and table polish (TP). The
additional processing costs for this process amounts 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	Table Stain	Table
				Cleaner	Remover (TSR)	Polish (TP)	Total
	Production in ounces			300,000	300,000	300,000
	Revenue			$204,000	$168,000	$168,000	$336,000
	Costs:
	CDG costs			70000*	52,500	52,500	105,000	**
	TCP costs			0	50,000	50,000	100,000
	Total costs			70,000	102,500	102,500	205,000
	Weekly gross profit			$134,000	$65,500	$65,500	$131,000
	*If table cleaner is not processed further, it is allocated 1/3 of the $210,000 of CDG cost, which is equal to 1/3 of the
	total physical output.
	** If table cleaner is processed further, total physical output is 1,200,000 ounces. TSR and TP combined account for
	50% of the total physical output and are each allocated 25% of the CDG cost.
	Instructions
(a)	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.
	(2) Calculate the company's total weekly gross profit assuming the table cleaner is processed further.
	(3) Compare the resulting net incomes and comment on management's decision.
(b)	Compare the resulting net incomes and comment on management's decision.

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