Daouk Chemical Corporation produces an oil-based chemical product which it sells to paint manufacturers. In 2014, the company incurred costs of $344,000 to produce 40,000 gallons of the chemical. The selling price of the chemical is $12.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below:

The company is considering manufacturing the paint itself. If the company processes the chemical further and manufactures the paint itself, the following additional costs per gallon will be incurred: Direct materials $1.70, Direct labor $0.60, Variable manufacturing overhead $0.50. No increase in fixed manufacturing overhead is expected.
The company can sell the paint at $15.50 per gallon.
Requirement Determine the differential per gallon increase in net income and the total increase in net income if the company manufactures the paint.

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Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing costs $6.00 1.20 0.80 0.60 $ 8.60