Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 2

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 ingot can be sold without further processing for $1,100 per ton. Ingot is produced in batches of 80 tons by smelting 500 tons of bauxite, which costs $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).
Instructions
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).
2. Briefly report your recommendations.