Question

Process or Sell

Product A is produced for $3.48 per pound. Product A can be sold without additional processing for $4.19 per pound or processed further into Product B at an additional cost of $0.39 per pound. Product B can be sold for $4.44 per pound.

Prepare a differential analysis dated November 15 on whether to sell A (Alternative 1) or process further into B (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.

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

Should Product A be sold (Alternative 1) or processed further into Product B (Alternative 2)?

Answer 1

Answer:

Differential Analysis Sell Product A (Alt. 1) or Process Further into Product B (Alt. 2) November 15
	Sell Product A (Alternative 1)	Process Further into Product B (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit	$4.19	$4.44	$0.25
Costs, per unit	-3.48	-3.87*	-0.39
Income (loss), per unit	$ 0.71	$ 0.57	-$ 0.14

* $3.48 + $0.39

The company should not process further into Product B.