Question

Sell or Process Further Calgary Lumber Company incurs a cost of $315 per hundred board feet (hbf) in processing certain "rough-cut" lumber, which it sells for $440 per hbf. An alternative is to produce a "finished cut" at a total processing cost of $465 per hbf, which can be sold for $600 per hbf. a. 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). Differential Analysis Sell Rough Cut (Alt. 1) or Process Further into Finished Cut (Alt. 2) March 15 Process FurtherDifferential (Alternative (Alternaie2) Alternative 2) Costs, per 100 board ft Income (Loss), per 100 board ft. b. Determine whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

Answer 1

It should process further as increases the contribution of the firm by 10 dollars

Step-by-step explanation:

rough-cut board:

sales price: 440

unit cost: (315)

contribution 115

finished-cut board:

sales price 600

cost (465)

contribution 135

difficerential analysis:

600- 440 = 160 increase in sales

465 - 315 = 150 increase in cost

10 increase in contribution