Process or Sell Product T is produced for $3.44 per pound. Product T can be sold

Question

Process or Sell

Product T is produced for $3.44 per pound. Product T can be sold without additional processing for $4.2 per pound or processed further into Product U at an additional cost of $0.42 per pound. Product U can be sold for $4.36 per pound.

Prepare a differential analysis dated November 15 on whether to sell T (Alternative 1) or process further into U (Alternative 2). If required, round your answers to the nearest whole dollar. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Should Product T be sold (Alternative 1) or processed further into Product U (Alternative 2)?

Differential Analysis Sell Product T (Alt. 1) or Process Further into Product U (Alt. 2) November 15 Sell Product T
(Alternative 1) Process Further
into Product
U (Alternative 2) Differential Effect
on Income
(Alternative 2) Revenues, per pound $ $ $ Costs, per pound Income (Loss), per pound $ $ $

Explanation / Answer

Differential Analysis

Sell Product T (Alt. 1) or Process Further into Product U (Alt. 2)

November 15 (Amounts in $)

As there is a decrease in income per pound of $0.26 if Product T is processed further into Product U (i.e. Alternative 2), Product T should be sold and not processed further into product U.

Particulars Sell Product T (Alternative 1) (A) Process Further into Product U (Alternative 2) (B) Differential Effect on Income (Alternative 2) (B-A) Revenues, per pound 4.20 4.36 0.16 Costs, per pound (3.44) (3.44+0.42) = (3.86) (0.42) Income(Loss), per pound 0.76 0.50 (0.26)

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