Friday, October 26, 2018

Product T is produced for $3.90 per pound. Product T can be sold without additional processing for $4.65 per pound

Product T is produced for $3.90 per pound. Product T can be sold without additional processing for $4.65 per pound, or processed further into Product U at an additional cost of $0.58 per pound. Product U can be sold for $5.30 per pound. Prepare a differential analysis dated August 2, 2014, on whether to sell Product T (Alternative 1) or process further into Product U (Alternative 2).

Answer:

Differential Analysis 
Sell Product T (Alt. 1) or Process Further into Product U (Alt. 2) 
August 2, 2014 
Sell Product T 
(Alternative 1) 
Revenues, per unit $4.65 $5.30 $0.65 
Costs, per unit –3.90 –4.48* –0.58 
Income (Loss), per unit $0.75 $0.82 $0.07 
    
* $3.90 + $0.58 
The company should process further into Product U. 

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