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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Sell or process further
St. Paul Lumber Company incurs a cost of $280 per hundred board feet in processing certain "rough-cut" lumber, which it sells for $320 per hundred board feet. An alternative is to produce a "finished cut" at a total processing cost of $350 per hundred board feet, which can be sold for $415 per hundred board feet. What is the amount of (a) the differential revenue, (b) differential cost, and (c) differential income for processing rough-cut lumber into finished cut?

To determine

Concept Introduction:

Decision making plays an important role in the management. The decisions taken by managers are called managerial decisions. Managerial Decisions are decisions taken by managers for the operations of a firm. These decisions include setting target growth rates, hiring or firing employees, and deciding what products to sell. Manager's decisions are taken on the basis of quantitative as well as the qualitative measures. The managerial decision includes the decisions like make or buy, accept or reject new offers, sell or further process etc. These decisions are taken on the basis of relevant costs.

Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.

Two basic types of the relevant costs are as follows:

  1. Out-of-pocket costs
  2. Opportunity costs

To Calculate:

The Differential Revenue, Differential Cost, and Differential Income

Explanation

The Differential Revenue, Differential Cost, and Differential Income are calculated as follows:

    Rough Cut Finished Cut Differential
    Selling Price (A)...

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