Calgary Lumber Company incurs a cost of $460 per hundred board feet (hbf) in pro

Question

Calgary Lumber Company incurs a cost of $460 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $607 per hbf. An alternative is to produce a “finished cut” at a total processing cost of $543 per hbf, which can be sold for $725 per hbf.

Determine whether the company should sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

Calgary Lumber Company incurs a cost of $460 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $607 per hbf. An alternative is to produce a “finished cut” at a total processing cost of $543 per hbf, which can be sold for $725 per hbf.

X

Amount Descriptions

X

Differential Analysis

Shaded cells have feedback.

1. Prepare a differential analysis dated March 15 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Question not attempted.

Score: 0/51

Differential Analysis

Sell Rough Cut (Alternative 1) or Process Further into Finished Cut (Alternative 2)

March 15

1

Sell Rough-Cut

Process Further into Finished-Cut

Differential Effect on Income

2

(Alternative 1)

(Alternative 2)

(Alternative 2)

Toyota Motor Corporation uses target costing. Assume that Toyota marketing personnel estimate that the competitive selling price for the Camry in the upcoming model year will need to be $24,000. Assume further that the Camry's total unit cost for the upcoming model year is estimated to be $19,600 and that Toyota requires a 20% profit margin on selling price (which is equivalent to a 25% markup on total cost).

a. What price will Toyota establish for the Camry for the upcoming model year?
$

Required: 1. Prepare a differential analysis dated March 15 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. 2.

Determine whether the company should sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

Calgary Lumber Company incurs a cost of $460 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $607 per hbf. An alternative is to produce a “finished cut” at a total processing cost of $543 per hbf, which can be sold for $725 per hbf.

Required: 1. Prepare a differential analysis dated March 15 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. 2. Determine whether the company should sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

X

Amount Descriptions

Amount Descriptions Costs, per unit Income (loss), per unit Revenues, per unit

X

Differential Analysis

Shaded cells have feedback.

1. Prepare a differential analysis dated March 15 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Question not attempted.

Score: 0/51

Differential Analysis

Sell Rough Cut (Alternative 1) or Process Further into Finished Cut (Alternative 2)

March 15

1

Sell Rough-Cut

Process Further into Finished-Cut

Differential Effect on Income

2

(Alternative 1)

(Alternative 2)

(Alternative 2)

Explanation / Answer

Solution 1:

Calgary Lumber Company will prepare the differential income statement as below:

Description

Alternative 1
(Rough Cut Lumber)

Alternative 2
(Finished Cut)

Differential

Revenue per unit

607

725

118

Cost per unit

460

543

83

Income per unit

147

182

35

Solution 2:

It should be noted that Company earns more income if the money is spent in finished cut and sold later. Hence Company should go for alternative 2.

Solution 3:

Since Toyota Motor Corporation requires a 20% profit margin (25% mark-up on total cost), Total unit cost given for the upcoming model will be $19,600.

If the Cost is $19,600; 25% mark-up will be 25% * $19,600 = $4,900

Selling Price = Total Cost + Mark-up = $19,600 + $4,900 = $24,500

Since the Marketing Personnel feels that the competitive selling price for year is $24,000 while after adding 25% mark-up, Price comes to $24,500

To stay in competition, Toyota may sell at $24,000 while it will cause the reduction in profit.

Description

Alternative 1
(Rough Cut Lumber)

Alternative 2
(Finished Cut)

Differential

Revenue per unit

607

725

118

Cost per unit

460

543

83

Income per unit

147

182

35

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