Question

Product K12 is produced for SAR 14 per gallon. Product K12 can be sold without additional processing for SAR 22 per gallon or processed further into Product M27 at an additional cost of SAR 7 per gallon. Product M27 can be sold for SAR 27 per gallon. Prepare a differential analysis on whether to sell Product K12 (Alternative 1), or process further into Product M27 (Alternative 2).

Answer 1

Differential Analysis

	Sell product K12 (Alternative 1)	Process further into M27 (Alternative 2)	Differential effect on income (alt 2)
Revenue per unit	SAR 22	SAR 27	SAR 5
Cost per unit	SAR 14	SAR 21	SAR 7
Income (loss) per unit	SAR 8	SAR 6	(SAR 2)

Product K12 should be sell instead of process further into M27.