Question

Product A is produced for $3.58 per pound. Product A can be sold without additional processing for $4.02 per pound or processed further into Product B at an additional cost of $0.45 per pound. Product B can be sold for $4.32 per pound.

Prepare a differential analysis dated November 15 on whether to sell A (Alternative 1) or process further into B (Alternative 2). If required, round your answers to the nearest whole dollar. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Sell Product A (Alt. 1) or Process Further into Product B (Alt. 2)
November 15
	Sell Product A (Alternative 1)	Process Further into Product B (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit	$	$	$
Costs, per unit
Income (Loss), per unit	$	$	$

Should Product A be sold (Alternative 1) or processed further into Product B (Alternative 2)?

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Accept Business at Special Price

Product D is normally sold for $41 per unit. A special price of $31 is offered for the export market. The variable production cost is $23 per unit. An additional export tariff of 13% of revenue must be paid for all export products. Assume that there is sufficient capacity for the special order.

Prepare a differential analysis dated March 16, on whether to reject (Alternative 1) or accept (Alternative 2) the special order. If required, round your answers to two decimal places. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
March 16
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit	$	$	$
Costs:
Variable manufacturing costs, per unit
Export tariff, per unit
Income (Loss), per unit	$	$	$

Should the special order be rejected (Alternative 1) or accepted (Alternative 2)?

Answer 1

Solution 1:

Differential Analysis
Sell Product A (Alt. 1) or Process Further into Product B (Alt. 2)
15-Nov
Particulars	Sell Product A	Process Further	Differential Effect
	(Alternative 1)	into Product	on Income
		B (Alternative 2)	(Alternative 2)
Revenues, per unit	$4.02	$4.32	$0.30
Costs, per unit	$3.58	$4.03	$0.45
Income (Loss), per unit	$0.44	$0.29	-$0.15

Product A should be sold rather to process it further in product B.

Solution 2:

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
16-Mar
Particulars	Reject Order	Accept Order	Differential Effect
	(Alternative 1)	(Alternative 2)	on Income
			(Alternative 2)
Revenues, per unit	$0.00	$31.00	$31.00
Costs:
Variable manufacturing costs, per unit	$0.00	$23.00	$23.00
Export tariff, per unit	$0.00	$4.03	$4.03
Income (Loss), per unit	$0.00	$3.97	$3.97

As there is financial advantage, therefore special order should be accepted.