Question 24.5: Product T is produced for $2.50 per gallon. Product T can be...

Financial and Managerial Accounting

Product T is produced for $2.50 per gallon. Product T can be sold without additional processing for $3.50 per gallon, or processed further into Product V at an additional total cost of $0.70 per gallon. Product V can be sold for $4.00 per gallon. Prepare a differential analysis dated April 8, 2014, on whether to sell Product T (Alternative 1) or process it further into Product V (Alternative 2).

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Differential Analysis Sell Product T (Alternative 1) or Process Further into Product V (Alternative 2) April 8, 2014
	Sell Product T (Alternative 1)	Process Further into Product V (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit …………………………………	$3.50	$4.00	$0.50
Costs, per unit………………………………………	–2.50	–3.20*	–0.70
Income (loss), per unit …………………………….	$\underline{\underline{\$ \ 1.00}}$	$\underline{\underline{\$ \ 0.80}}$	$\underline{\underline{–\$ \ 0.20}}$
*$2.50 + $0.70

The decision should be to sell Product T.

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