Question

Georgia Pacific, Inc. produces a number of products that the company can sell at the split-off point or the company can process the products further and then sold. Use the data below to answer the following questions :

Sales Value Additional Sales Value after

Product at Split-off    Variable Costs Further Processing

New lumber    $79,800    $12,000    $89,000

Weathered lumber    $62,000    $14,100    $86,800

Pulp $51,000    $9,800    $65,000

a) What is the additional profit that would result from processing weathered lumber further? Show your calculations.

b) Which products should Georgia Pacific process further? Show your calculations.

c) What is the increase in Georgia Pacific’s profit if the appropriate products are processed further?

Answer 1

	Sales value at split off (i)	Additional variable costs (ii)	Sales value after further processing (iii)	Increase in sales revenue (iii) - (i) = (iv)	Increase in profit/loss (iv) - (ii)
New lumber	79,800	12,000	89,000	9,200	- 2,800
Weathered lumber	62,000	14,100	86,800	24,800	10,700
Pulp	51,000	9,800	65,000	14,000	4,200

a)

Additional profit that would result from processing weathered lumber further = $10,700

b)

Weathered lumber and Pulp should be processed further.

c)

If Weathered lumber and Pulp are processed further, profit will increase by $14,900 (10,700 + 4,200)