Question

Sell or Process Further

Jackson Lumber Company incurs a cost of $374 per hundred board feet (hbf) in processing certain "rough-cut" lumber, which it sells for $564 per hbf. An alternative is to produce a "finished cut" at a total processing cost of $522 per hbf, which can be sold for $750 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.	$	$	$
Costs, per 100 board ft.
Income (Loss), per 100 board ft.	$	$	$

Determine whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

Answer 1

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.	$564	$750	$186
Costs, per 100 board ft.	-374	-522	-148
Income (Loss), per 100 board ft.	$190	$228	$38

Determine whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

Company should process further into finished cut