APPLY THE CONCEPTS: Calculate differential cost in a sell-or-process-further dec

Question

APPLY THE CONCEPTS: Calculate differential cost in a sell-or-process-further decision Scoot Corporation buys cedar logs. It removes the bark and cuts each log into cedar planks. It can sell each plank for $30. The cost to produce each plank is $9. ScootCorporation has the opportunity to use these planks to make cedar canoes. It takes 10 cedar planks to make one cedar canoe and requires an additional S900 in production costs. A cedar canoe can be sold for $1,350. The differential cost of making one cedar canoe is $ APPLY THE CONCEPTS: Calculate differential income in a sell-or-process-further decision Complete the table to compare the effects of selling at the split-off point or processing further. In the Differential Effect on Income (Canoe) column. Enter all amounts as positive numbers except for a net loss. Based on the analysis. Scoot Corporation should. If Scoot processes the planks into canoes, its overall income will by $ per canoe.

Explanation / Answer

Diffrential cost to make one ceder canoe = $900

(Note: It has been said that ADDITIONAL cost of making one canoe is $900)

Note:

1) cost of one canoe = cost of ten planks + additional cost = $9x10+$900 = $990

Based on the analysis Scoot Corporation should process further. If Scoot processes planks into canoe, its overall income will increase by $150 per canoe

Alternatives Diffrential effect Ten planks one canoe Sales 300 1350 1050 Costs 90 990 900 Net Income/(loss) 210 360 150

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