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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 924,300 ounces of chemical input are processed at a
cost of $210,900 into 616,200 ounces of floor cleaner and 308,100 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 $245,555.
FloorShine sells at $20 per 30-ounce bottle. The table cleaner can be sold for $30 per 25-ounce
bottle. However, the table cleaner can be converted into two other products by adding 308,100
ounces of another compound (TCP) to the 308,100 ounces of table cleaner. This joint process will
yield 308,100 ounces each of table stain remover (TSR) and table polish (TP). The additional
processing costs for this process amount to $100,900. Both table products can be sold for $22 per
The company decided not to process the table cleaner into TSR and TP based on the following
Production in ounces
Weekly gross profit
*If table cleaner is not processed further, it is allocated 1/3 of the $210,900 of CDG cost, which is
equal to 1/3 of the total physical output.
**If table cleaner is processed further, total physical output is 1,232,400 ounces. TSR and TP
combined account for 50% of the total physical output and are each allocated 25% of the CDG
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
Total weekly gross profit $
(2) Calculate the company’s total weekly gross profit assuming the table cleaner is processed
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.