This Website Has Been Moved to a New Link


Loading

P7-3A Sutton Industrial Products Inc. (SIPI)

Price: $2.50


P7-3A Sutton Industrial Products Inc. (SIPI) is a diversified industrial-cleaner processing
company. The company’s Verde 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 $18 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 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.



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) Using incremental analysis, determine if the table cleaner should be processed further.

No comments:

Post a Comment