Question

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 $2,200 per ton, and if not can be sold without further processing for $1,100 per ton. I got is produced in batches of 80 tons by smelting 500 tons of bauxite, which cost $105 per ton of bauxite. Rolled aluminum will require additional processing costs of $620 per ton of ingot, and 1.25 tons of ingot will produce 1 ton of rolled aluminum (due to trim losses)

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). Use a minus sign to indicate subtracted amounts, negative amounts, or a loss.

Differential analysis

Sell Ingot(Alt.1) or Process Futher into Rolled Aluminum (Alt.2)

February 5

Sell Ingot(Alternative1). Process Further into Rolled Aluminum (Alternitive 2). Differential Effect on Income

(Alternative 2)

Revenues, per ton. $. $. $

Cost,per ton. $. $. $

Income(loss),per ton. $. $. $

2. International aluminum company ____ process alumuingot Further , rather than sell aluminum ingot because profits would be ____ if ingot was processed further into rolled aluminum.

Answer 1

Solution 1:

Differential Analysis - Sell aluminium Ingot (Alt 1) or Process further into rolled aluminium
Particulars	Sell Ingot(Alt.1)	Process Futher into Rolled Aluminum (Alt.2)	Differential Effect on Income
Revenue, per ton	$1,100.00	$1,760.00	$660.00
Cost per ton:
Smelting bauxite	$656.25	$656.25	$0.00
Additional processing cost of rolled aluminium	$0.00	$620.00	$620.00
Total cost per ton	$656.25	$1,276.25	$620.00
Income (loss) per ton	$443.75	$483.75	$40.00

Solution 2:

International aluminum company should Process alumuingot Furthe, rather than sell aluminum ingot because profits would be increased, if ingot was processed further into rolled aluminum.