Question
Sell or Process Further Jackson Lumber Company incurs a cost of $396 per hundred board feet (hbf) in processing certain rough-cut lumber, which it sells
Sell or Process Further
Jackson Lumber Company incurs a cost of $396 per hundred board feet (hbf) in processing certain "rough-cut" lumber, which it sells for $560 per hbf. An alternative is to produce a "finished cut" at a total processing cost of $522 per hbf, which can be sold for $770 per hbf.
Prepare a differential analysis dated August 9 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). For those boxes in which you must enter subtracted or negative numbers use a minus sign.
Differential Analysis | |||
Sell Rough-Cut (Alt. 1) or Process Further into Finished Cut (Alt. 2) | |||
August 9 | |||
Sell Rough-Cut (Alternative 1) | Process Further into Finished Cut (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues, per 100 board ft. | $fill in the blank 492deb0bafae042_1 | $fill in the blank 492deb0bafae042_2 | $fill in the blank 492deb0bafae042_3 |
Costs, per 100 board ft. | fill in the blank 492deb0bafae042_4 | fill in the blank 492deb0bafae042_5 | fill in the blank 492deb0bafae042_6 |
Income (Loss), per 100 board ft. | $fill in the blank 492deb0bafae042_7 | $fill in the blank 492deb0bafae042_8 | $fill in the blank 492deb0bafae042_9 |
Determine whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).
Decision on Accepting Additional Business
Brightstone Tire and Rubber Company has capacity to produce 264,000 tires. Brightstone presently produces and sells 202,000 tires for the North American market at a price of $96 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 31,000 tires for $77.1 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows:
Direct materials | $36 |
Direct labor | 13 |
Factory overhead (60% variable) | 22 |
Selling and administrative expenses (30% variable) | 19 |
Total | $90 |
Brightstone pays a selling commission equal to 5% of the selling price on North American orders, which is included in the variable portion of the selling and administrative expenses. However, this special order would not have a sales commission. If the order was accepted, the tires would be shipped overseas for an additional shipping cost of $5 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $158,100.
a. Prepare a differential analysis dated January 21 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. If an amount is zero, enter zero "0". If required, round interim calculations to two decimal places.
Differential Analysis | |||
Reject Order (Alt. 1) or Accept Order (Alt. 2) | |||
January 21 | |||
Reject Order (Alternative 1) | Accept Order (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | $fill in the blank fc354f000fecfae_1 | $fill in the blank fc354f000fecfae_2 | $fill in the blank fc354f000fecfae_3 |
Costs: | |||
Direct materials | fill in the blank fc354f000fecfae_4 | fill in the blank fc354f000fecfae_5 | fill in the blank fc354f000fecfae_6 |
Direct labor | fill in the blank fc354f000fecfae_7 | fill in the blank fc354f000fecfae_8 | fill in the blank fc354f000fecfae_9 |
Variable factory overhead | fill in the blank fc354f000fecfae_10 | fill in the blank fc354f000fecfae_11 | fill in the blank fc354f000fecfae_12 |
Variable selling and admin. expenses | fill in the blank fc354f000fecfae_13 | fill in the blank fc354f000fecfae_14 | fill in the blank fc354f000fecfae_15 |
Shipping costs | fill in the blank fc354f000fecfae_16 | fill in the blank fc354f000fecfae_17 | fill in the blank fc354f000fecfae_18 |
Certification costs | fill in the blank fc354f000fecfae_19 | fill in the blank fc354f000fecfae_20 | fill in the blank fc354f000fecfae_21 |
Income (Loss) | $fill in the blank fc354f000fecfae_22 | $fill in the blank fc354f000fecfae_23 | $fill in the blank fc354f000fecfae_24 |
Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors.
b. What is the minimum price per unit that would be financially acceptable to Brightstone? Round your answer to two decimal places. $fill in the blank 79553bfc0fa2fa5_2per unit
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