Sell or Process Further Jackson Lumber Company Incurs a cost of $376 per hundred

Question

Sell or Process Further Jackson Lumber Company Incurs a cost of $376 per hundred board feet In processing certaln 'rough-cut" lumber, whlch It sells for $560 per hundred board feet. An alternative Is to produce a "finlshed cut" at a total processing cost of $522 per hundred board feet, whlch can be sold for $742 per hundred board feet a. Prepare a differential analysis dated March 4, on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2) Differential Analysis Sell Raugh Cut (lt 1) or Process Further into Finished Cut (Alt. 2) March 4 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. Determine whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2)

Explanation / Answer

*)

Alternate - 1

Profit = revenue - cost

= 560-376=184

*)

Alternative - 2

profit = Revenue - cost

= 742-522=220

so we they should process further (Alternative -2) Which will give additional $36 as profit

(incremental revenue - incremental cost)

*. incremental revenue = 742-560=182

*.incremental cost = 522- 376 = 146

=182 -146=36

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