Calgary Lumber Company incurs a cost of $378 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $552 per hbf. An alternative is to produce a “finished cut” at a total processing cost of $523 per hbf, which can be sold for $750 per hbf.
a. Prepare a differential analysis dated March 15, on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).
Differential Analysis | |||
Sell Rough-Cut (Alt. 1) or Process Further into Finished-Cut (Alt. 2) | |||
March 15 | |||
Sell-Rough-Cut (Alternative 1) | Process Further into Finished-Cut (Alternative 2) |
Differential Effect on Income (Alternative 2) |
|
Revenues, per unit | $ | $ | $ |
Costs, per unit | |||
Income (Loss), per unit | $ | $ | $ |
Differential Analysis |
|||
Sell Rough-Cut (Alt. 1) or Process Further into Finished-Cut (Alt. 2) |
|||
March 15 |
|||
Sell-Rough-Cut (Alternative 1) |
Process Further |
Differential |
|
Revenues, per unit |
$552 |
$750 |
$198 |
Costs, per unit |
$378 |
$523 |
$145 |
Income (Loss), per unit |
$174 |
$227 |
$53 |
It is better to process further into finished cut so as to earn incremental income of $53.
Calgary Lumber Company incurs a cost of $378 per hundred board feet (hbf) in processing certain...
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