The management of Allegheny Valley Aluminum Co. is considering whether to process aluminum ingot further into rolled aluminum. Rolled aluminum can be sold for $1,600 per ton, and ingot can be sold without further processing for $950 per ton. Ingot is produced in batches of 66 tons by smelting 400 tons of bauxite, which costs $450 per ton. Rolled aluminum will require additional processing costs of $425 per ton of ingot, and 1.2 tons of ingot will produce 1 ton of rolled aluminum (due to trim losses).
Instructions
1. Prepare a report as of December 20, 2010, presenting a differential analysis associated with the further processing of aluminum ingot to produce rolled aluminum.
2. Briefly report your recommendations.