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 $2,300 per ton, and ingot can be sold without further processing for $1,150 per ton. Ingot is produced in batches of 88 tons by smelting 540 tons of bauxite, which costs $102 per ton of bauxite. Rolled aluminum will require additional processing costs of $600 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 Line Item Description Sell Ingot (Alternative 1) Process Further into Rolled Aluminum (Alternative 2) Differential Effects (Alternative 2) Revenues, per batch Costs, per batch Profit (loss), per batch 2. International Aluminum Co. process aluminum ingot further, rather than sell aluminum ingot because profits would be
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 $2,300 per ton, and ingot can be sold without further processing for $1,150 per ton. Ingot is produced in batches of 88 tons by smelting 540 tons of bauxite, which costs $102 per ton of bauxite. Rolled aluminum will require additional processing costs of $600 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 Line Item Description Sell Ingot (Alternative 1) Process Further into Rolled Aluminum (Alternative 2) Differential Effects (Alternative 2) Revenues, per batch Costs, per batch Profit (loss), per batch 2. International Aluminum Co. process aluminum ingot further, rather than sell aluminum ingot because profits would be
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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 $2,300 per ton,
and ingot can be sold without further processing for $1,150 per ton. Ingot is produced in batches of 88 tons by smelting 540 tons of bauxite, which costs $102 per ton of bauxite.
Rolled aluminum will require additional processing costs of $600 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
Line Item Description
Sell Ingot
(Alternative 1)
Process Further
into Rolled Aluminum
(Alternative 2)
Differential Effects
(Alternative 2)
Revenues, per batch
Costs, per batch
Profit (loss), per batch
2. International Aluminum Co.
process aluminum ingot further, rather than sell aluminum ingot because profits would be
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