Answered: The management of International…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 4PB

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Question

Differential Analysis for Further Processing

The management of International Aluminum Co. is considering whether to process aluminum ingot further into rolled aluminum. Rolled aluminum can be sold for $2,400 per ton, and ingot can be sold without further processing for $1,200 per ton. Ingot is produced in batches of 81 tons by smelting 500 tons of bauxite, which costs $108 per ton of bauxite. Rolled aluminum will require additional processing costs of $630 per ton of ingot, and 1.25 tons of ingot will produce 1 ton of rolled aluminum.

Required:

1. Prepare a differential analysis as of February 5 to determine whether to sell aluminum ingot (Alternative 1) or process further into rolled aluminum (Alternative 2). If required, do not round interim calculations. If required, use a minus sign to indicate a loss.

Differential Analysis
Sell Ingot (Alt. 1) or Process Further into Rolled Aluminum (Alt. 2)
February 5
	Sell Ingot (Alternative 1)	Process Further into Rolled Aluminum (Alternative 2)	Differential Effects (Alternative 2)
Revenues, per batch
Costs, per batch
Profit (loss), per batch

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Decision to Sell before or after additional processing

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