Product T is produced for $5.46 per pound. Product T can be sold without additio

Question

Product T is produced for $5.46 per pound. Product T can be sold without additional processing for $7.89 per pound, or processed further into Product U at an additional cost of $0.80 per pound. Product U can be sold for $8.83 per pound. Required: 1. Prepare a differential enalysis dated August 2 on whether to sell Product T (Alternative 1) or process further into Productu Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter " A colon (:) will automatically appear if required 2. Should Product T be sold (Alternative 1) or processed further into Product U (Alternative 2)

Explanation / Answer

Differential revenues and costs represent the difference in revenues and costs among alternative courses of action. Analyzing this difference is called differential analysis . In this method all relevant incremental revenues and cost need to be identified and analysed.

As per the below table, since incremental revenue exceed the incremental costs bu 0.14 pounds per unit , the company must go ahead and sell Product U. ( process further into product U)

Differentail Analysis Sell Product T Process Further Differential Effect into Product U on income 1 Selling Price 7.89 8.83 0.94 2 Cost of production 5.46 5.46 0 3 additional cost of conversion 0.8 0.8 4 Profit per unit (1-2-3) 2.43 2.57 0.14

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.