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Homework answers / question archive / Differential Analysis for further Processing The management of International Aluminum Co
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 $2,100 per ton, and ingot can be sold without further processing for $1,050 per ton. Ingot is produced in batches of 83 tons by smelting 510 tons of bauxite, which costs $105 per ton of bauxite. Rolled aluminum will require additional processing costs of 5620 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 Process Differential Sell Ingot Further into Effects (Alternative 1) Rolled Aluminum (Alternative 2) (Alternative 2) Revenues, per batch Costs, per batch Profit (loss), per batch process aluminum ingot further, rather than sell aluminum ingot because profits 2. International Aluminum Co. would be
Differential Analysis
Sell Ingot (Alt 1) Or Process Further into Rolled Aluminum (Alt 2)
|
Sell Ingot (Alternative1) |
Process Further into rolled Aluminum (Alternative 2) |
Differential Effects (Alternative 2) |
|
|
Revenue,Per batch |
$87,150 ($1050 × 83) |
$139,440 ($2100 × 83/1.25) |
$52,290 |
|
Cost , Per Batch |
$53,550 ($105 ×510) |
$105,010 ($53,550 + $620×83) |
$51,460 |
| Profit(Loss),Per Batch | $33,600 | $34,430 | $830 |
2. International Aluminum Co. Should process aluminum ingot further, rather than sell aluminum ingot because profits would be $830
