Sell or Process Further Bunyon Lumber Company incurs a cost of $388 per hundred

Question

Sell or Process Further Bunyon Lumber Company incurs a cost of $388 per hundred board feet in processing certain "rough-cut" lumber, which it sells for $562 per hundred board feet. An alternative is to produce a "finished cut" at a total processing cost of $526 per hundred board feet, which can be sold for $770 per hundred board feet. Hide Hint(s) a. Prepare a differential analysis dated March 4, 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) March 4, 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. $ $ $

Explanation / Answer

Differential Analysis Sell Rough Cut (Alternative 1)/Process Further into Finished goods (Alt 2) Sell rough cut (Al 1) Process Further into Finished Goods (Alt 2) Differential Effect oN Income (Alt 2) Revenue,per 100 board ft $562 $770 $208 Costs, per 100 board ft ($388) ($526) ($138) Income(Loss), per 100 board ft $174 $244 $70 Bunyon Lumber company should further process to finished goods as there is increase in income by $70

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