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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Process or sell

Product K is produced for $155 per pound. Product K can be sold without additional processing for $220 per pound or processed further into Product L at an additional cost of $28 per pound Product Lean be sold for $250 per pound Prepare a differential analysis dated November 15 oil whether to sell Product K (Alternative 1) or process further into Product L (Alternative 2).

To determine

Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.

To Prepare: The differential analysis to decide whether to sell Product K or process it further to Product L.

Explanation

A company has two alternatives either to sell the Product K at $220 per pound, or to process it further to Product L and sell at $250 per pound. The Cost of production of Product K comes around $155 per pound and an additional cost of $28, is involved in the production of Product L. This clearly shows an increase in the income by $2 if the company further processes the Product K to Product L; hence the Product K should be processed further to Product L...

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