Homework $-$ Chapter $25$

Sell or Process Further

Northern Lumber Company incurs a cost of $$372$ per hundred board feet $($hbf$)$ in processing certain "rough$-$cut" lumber, which it sells for $$544$ per hbf$.$ An alternative is to produce a "finished$-$cut" at a total processing cost of $$530$ per hbf$,$ which can be sold for $$780$ per hbf$.$

a$.$ Prepare a differential analysis dated April $21$ 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$.2)$

April $21$

Line Item Description

Revenues, per $100$ board ft $.$

Costs, per $100$ board ft$.$

Profit $($Loss$),$ per $100$ board ft$.$

Profit $($Loss$),$ per $100$ board ft$.$

Process Further

Sell Rough$-$Cut $($Alternative $1)$

$ $$

$q,$

$q,$

into Finished$-$Cut $($Alternative $2)$ $ $q,$

$q,$ $

Differential Effects $($Alternative $2)$

$$

$

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Check My Work

For both products, subtract the costs from the revenues, per $100$ board ft$.$ Determine the differential effect on income of the revenues, costs, and profit $($loss$)$ by subtracting alternative $1$ from alternative $2.$

b$.$ Determine whether to sell rough$-$cut lumber $($Alternative $1)$ or process further into finished$-$cut lumber $($Alternative $2).$

Process further and sell finished$-$cut lumber. $$