Sell or Process Further

Oakridge Lumber Company incurs a cost of $412 per hundred board feet in processing certain "rough-cut" lumber, which it sells for $586 per hundred board feet. An alternative is to produce a "finished cut" at a total processing cost of $536 per hundred board feet, which can be sold for $755 per hundred board feet.

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Hint(s)

a. Prepare adifferential analysisdated June 14, 2014, 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)
June 14, 2014
Sell Rough Cut (Alternative 1)	Process Further into Finished Cut (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per 100 board ft.	$	$	$
Costs, per 100 board ft.
Income (Loss), per 100 board ft.	$	$	$

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FollowExample Exercise 24-5. For both products, subtract the costs from the revenues per 100 board feet. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1.

Learning Objective 1.

Determine whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). SelectSell rough-cut lumberProcess further and sell finished-cut lumberCorrect 1 of Item 2

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FollowExample Exercise 24-5. For both products, subtract the costs from the revenues per 100 board feet. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1.

Learning Objective 1.