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). 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). 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 Effect on Income (Alternative 2) Revenues, per batch $ $ $ Costs, per batch Income (Loss), per batch $ $ $ 2. International Aluminum Co. process aluminum ingot further, rather than sell aluminum ingot because profits would be if ingot was processed further into rolled aluminum.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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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).

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).

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 Effect on Income (Alternative 2)
Revenues, per batch	$	$	$
Costs, per batch
Income (Loss), per batch	$	$	$

2. International Aluminum Co. process aluminum ingot further, rather than sell aluminum ingot because profits would be if ingot was processed further into rolled aluminum.

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