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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 D is produced for $24 per gallon. Product D can be sold without additional processing for $36 per gallon or processed further into Product E at an additional cost of $9 per gallon. Product E can be sold for $43 per gallon. Prepare a differential analysis dated February 26 on whether to sell Product D (Alternative 1) or process further into Product E (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 D or process it further to Product E.

Explanation

A company has two alternatives either to sell the Product D at $36 per gallon, or to process it further to Product E and sell at $43 per gallon. The Cost of production of Product D comes around $24 per gallon and an additional cost of $9, is involved in the production of Product E. This clearly shows an increase in the income by $2 if the company sells the Product D without processing it further to Product E; hence the Product D should not be processed further to Product E...

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