Calgary Lumber Company incurs a cost of $370 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $542 per hbf. An alternative is to produce a “finished-cut” at a total processing cost of $526 per hbf, which can be sold for $754 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 AnalysisSell Rough-Cut (Alt. 1) or Process Further into Finished-Cut (Alt. 2)March 15 SellRough-Cut(Alternative 1)Process Furtherinto Finished-Cut(Alternative 2)DifferentialEffects(Alternative 2)Revenues, per 100 board ft.$$$Costs, per 100 board ft.   Profit (Loss), per 100 board ft.$$$b.  Determine whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

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Asked Dec 1, 2019
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Calgary Lumber Company incurs a cost of $370 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $542 per hbf. An alternative is to produce a “finished-cut” at a total processing cost of $526 per hbf, which can be sold for $754 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
  Sell
Rough-Cut
(Alternative 1)
Process Further
into Finished-Cut
(Alternative 2)
Differential
Effects
(Alternative 2)
Revenues, per 100 board ft. $ $ $
Costs, per 100 board ft.      
Profit (Loss), per 100 board ft. $ $ $

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

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Expert Answer

Step 1

Differential analysis:

Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.

Step 2

a. The differential analysis of Company CL as on March 15, for the given alternative is shown as follows:

Differential Analysis
Sell Rough-Cut (Alternative. 1) or Process Further into Finished-Cut (Alternative
2)
March 15
Differential Effect
Process Further
Sell-Rough-Cut into Finished-Cut
Alternative 1)
on Income
Alternative 2)
(Alternative 1- 2)
Revenues, per unit
$452
$754
$302
Costs, per unit
-370
$526
$156
Income (Loss), per unit
$146
$82
$228
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Differential Analysis Sell Rough-Cut (Alternative. 1) or Process Further into Finished-Cut (Alternative 2) March 15 Differential Effect Process Further Sell-Rough-Cut into Finished-Cut Alternative 1) on Income Alternative 2) (Alternative 1- 2) Revenues, per unit $452 $754 $302 Costs, per unit -370 $526 $156 Income (Loss), per unit $146 $82 $228

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Step 3

Conclusion: As per the differential analysis of Company CL as on March 15, selling finis...

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