Question

Sell or Process Further Calgary Lumber Company incurs a cost of $400 per hundred board feet...

Sell or Process Further

Calgary Lumber Company incurs a cost of $400 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $570 per hbf. An alternative is to produce a “finished-cut” at a total processing cost of $529 per hbf, which can be sold for $748 per hbf.

a. Prepare a differential analysis dated March 15 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)
March 15
Sell
Rough-Cut
(Alternative 1)
Process Further
into Finished-Cut
(Alternative 2)
Differential
Effects
(Alternative 2)
Revenues, per 100 board ft. $ $ $
Costs, per 100 board ft.
Profit (Loss), per 100 board ft. $ $ $

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

Homework Answers

Answer #1

a.

Differential Analysis
Sell Rough-Cut (Alt. 1) or Process Further into Finished-Cut (Alt. 2)
Mar-15
Sell Process Further Differential
Rough-Cut into Finished-Cut Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues, per 100 board ft. 570 748 178
Costs, per 100 board ft. -400 -529 -129
Profit (Loss), per 100 board ft. $170 $219 $49

b.

It is advantageous to process further.

Net incremental benefit of processing further = $49.

Kindly give a positive rating if you are satisfied with this solution and please ask if you have any query.

Thanks

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