APPLY THE CONCEPTS: Calculate differential cost in a sell-or-process-further decision

Galaxy Corporation buys cedar logs. It removes the bark and cuts each log into cedar planks. It can sell each plank for $40. The cost to produce each plank is $12. GalaxyCorporation has the opportunity to use these planks to make cedar canoes. It takes 10 cedar planks to make one cedar canoe and requires an additional $1,200 in production costs. A cedar canoe can be sold for $1,400. The differential cost of making one cedar canoe is $ _________________ .

APPLY THE CONCEPTS: Calculate differential income in a sell-or-process-further decision

Complete the table to compare the effects of selling at the split-off point or processing further. In the Differential Effect on Income (Canoe) column. Enter all amounts as positive numbers except for a net loss.

	Alternatives				Differential Effect Increase/Decease (Canoe)
	Ten Planks		One Canoe
Sales	$ _________________		$ _________________		$ _________________
Costs	_________________		_________________		_________________
Net income (loss)	$ _________________		$ _________________		$ _________________

Based on the analysis, Galaxy Corporation should _________________ . If Galaxy processes the planks into canoes, its overall income will _________________ by $ _________________ per canoe.