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 $2,100 per ton, and ingot can be sold without further processing for $1,050 per ton. Ingot is produced in batches of 86 tons by smelting 530 tons of bauxite, which costs $109 per ton of bauxite. Rolled aluminum will require additional processing costs of $610 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

	Sell Ingot (Alternative 1)	Process Further into Rolled Aluminum (Alternative 2)	Differential Effects (Alternative 2)
Revenues, per batch	$fill in the blank 58a40d03603c041_1	$fill in the blank 58a40d03603c041_2	$fill in the blank 58a40d03603c041_3
Costs, per batch	fill in the blank 58a40d03603c041_4	fill in the blank 58a40d03603c041_5	fill in the blank 58a40d03603c041_6
Profit (loss), per batch	$fill in the blank 58a40d03603c041_7	$fill in the blank 58a40d03603c041_8	$fill in the blank 58a40d03603c041_9

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1. For both products, subtract the costs from the revenues. Determine the differential effect on income of the revenues, costs, and income (loss).

2. International Aluminum Co.

shouldshould notshould

process aluminum ingot further, rather than sell aluminum ingot because profits would be