The management of Dorsch Aluminum Co. is considering whether to process aluminum

Question

The management of Dorsch Aluminum Co. is considering whether to process aluminum ingot further into rolled aluminum. Rolled aluminum can be sold for $4,100 per ton, and ingot can be sold without further processing for $2,400 per ton. Ingot is produced in batches of 80 tons by smelting 400 tons of bauxite, which costs $500 per ton. Rolled aluminum will require additional processing costs of $750 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 report presenting a differential analysis associated with the further processing of aluminum ingot to produce rolled aluminum.

2. Briefly report your recommendations.

Differential check point $70,400

Explanation / Answer

1)

Report presenting differential anlysis is as follows:

2)

Since, the further processing resulted in profits; it is advisable to process further.

Particulars Rolled aluminium Aluminium ingot Differencial analysis Sale price                             4,100                           2,400               1,700 Less: costs incurred                                 500                              500                      -   Additional processing costs                                 750                                  -                     750 Total costs                             1,250                              500                   750 Profit                             2,850                           1,900                   950

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