Jackson Lumber Company incurs a cost of $400 per hundred board feet (hbf) in pro

Question

Jackson Lumber Company incurs a cost of $400 per hundred board feet (hbf) in processing certain "rough-cut" lumber, which it sells for $544 per hbf. An alternative is to produce a "finished cut" at a total processing cost of $521 per hbf, which can be sold for $762 per hbf. Prepare a differential analysis dated August 9 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Sell Rough Cut (Alt. 1) or Process Further into Finished Cut (Alt. 2) August 9 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

Solution:

As income from alternative 2 is higher, therefore process further in to finished cut timber.

Differential Analysis - Jackson Lumber Company Particulars Sell Rough cut (Alt 1) Process Further into Finished Cut (Alt 2) Differential Effect on Income (Alt 2) Revenues per 100 board feet $544.00 $762.00 $218.00 Cost per 100 board feet -$400.00 -$521.00 -$121.00 Income (Loss) $144.00 $241.00 $97.00

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