Question

Portland Lumber Company incurs a cost of $465 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $630 per hbf. An alternative is to produce a “finished cut” at a total processing cost of $566 per hbf, which can be sold for $766 per hbf.

Required:

1.

Prepare a differential analysis dated June 14 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter “0”. A colon (:) will automatically appear if required.

2.

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

1. Prepare a differential analysis dated June 14 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter “0”. A colon (:) will automatically appear if required.

Differential Analysis

Sell Rough Cut (Alternative 1) or Process Further into Finished Cut (Alternative 2)

June 14

1		Sell Rough Cut	Process Further into Finished Cut	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4
5

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

The company is indifferent since the result is the same regardless of which alternative is chosen.

Sell rough-cut lumber

Process further and sell finished-cut lumber

Amount Descriptions
Costs, per 100 board ft.
Income (Loss), per 100 board ft.
Revenues, per 100 board ft.

Answer 1

1
		Differential Analysis
	Sell Rough Cut (Alternative 1) or Process Further into Finished Cut (Alternative 2)
	June 14
	Sell Rough Cut	Process Further into Finished Cut	Differential Effect on Income
	(Alternative 1)	(Alternative 2)	(Alternative 2)
Revenues, per 100 board ft.	630	766	136
Costs, per 100 board ft.	-465	-566	-101
Income (Loss), per 100 board ft.	165	200	35
2
Process further and sell finished-cut lumber