the nick lumber company is in the process of deciding whether to sell or process

Question

the nick lumber company is in the process of deciding whether to sell or process further rough sawn lumber. the joint cost of producing the rough sawn lumber is $10,500. the following data is available.

lumber A: number of boards 3,000 , selling price per board (at split off) $16 (after additional procesing) $20, incremental cost to process further $5,000

lumber B: number of boards 2,000 , selling price per board (at split off) $24 (after additional processing) $30, incremental cost to process further $6,500

lumber C: number of boards 1,000 , selling price per board (at split off) $28 (after additional processing) $32, incremental cost to process further $5,500.

A) what Is the incremental effect, increase (or decrease) on operating income of processing each type of lumber further?

B) which type of lumber should be processed further?

Explanation / Answer

Lumber A and Lumber B should be processed further as it will result in additional operating income

Number of boards Selling price after additional processing Additional revenue Cost to process Cost per board Additional profit Additional operating income Lumber A 3000 16 20 4 5000 1.666666667                           2.33 7000 Lumber B 2000 24 30 6 6500 3.25 2.75 5500 Lumber C 1000 28 32 4 5500 5.5 -1.5 -1500

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