Sell or Process Further Jackson Lumber Company incurs a cost of $392 per hundred

Question

Sell or Process Further Jackson Lumber Company incurs a cost of $392 per hundred board feet in processing certain "rough-cut" lumber, which it sells for $542 per hundred board feet. An alternative is to produce a "finished cut" at a total processing cost of $521 per hundred board feet, which can be sold for $780 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 Rough Cut (Alt. 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) Costs, per 100 board ft. Income (Loss), per 100 board ft.

Explanation / Answer

Sell Rough cut (Alternate 1) Process further into finished cut (Alternate 2) Differential effect on income (Alternate 2) = Alternate 2 - alternatte 1 Revenues, per 100 board ft 542 780 238 Cost per 100 board ft 392 521 129 income ( loss), per 100 board ft 150 259 109 If the firm sells rough cut the income would be $150, and if it process further the income would be $259, which is increased by $109. Thus the firm can produce further and sell the finished cut.

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