Question

Product J19 is produced for $11 per gallon. Product J19 can be sold without additional processing for $18 per gallon, or processed further into Product R33 at an additional cost of $7 per gallon. Product R33 can be sold for $24 per gallon.

Required:
Prepare a differential analysis dated April 30 on whether to sell Product J19 (Alternative 1) or process further into Product R33 (Alternative 2).

Answer 1

Answer: If Product J19 is processed further into Product R33, the company would make $1 less than if Product J19 was sold as is.

Step-by-step explanation:

Alternative 1 - Product J19

We are given the following for Alternative 1

Sales Price = $18

Cost = $11

Therefore the income from Alternative 1 is,

= 18 - 11

=$7

Alternative 2 - Product R33.

We are given the following,

Sales Price = $24

Cost = $11 of the original + $7 additional cost

= $18

Thus income is,

= 24 - 18

= $6

The income from Alternative 1 is $7 while the income from Alternative 2 is $6.

This means that if Product J19 is processed further into Product R33 and sold, the company would make $1 less than if Product J19 was sold as is.