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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Sell or process further

Big Fork Lumber Company incurs a cost of $402 per hundred board feet (hbf) in processing certain “rough-cut" lumber, which it sells for $540 per hbf. An alternative is to produce a “finished cut" at a total processing cost of $523 per hbf, which can be sold for $668 per hbf. Prepare a differential analysis dated August 9 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

To determine

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.

To Prepare: The differential analysis of Company BFL as on August 9, to decide whether to sell rough cut or process it further to finished cut lumber.

Explanation

The differential analysis of Company BFL as on August 9, for the given alternatives is shown below.

Differential Analysis of Company BFL
Sell Rough Cut (Alt. 1) or Process Further to Finished Cut (Alt. 2) Lumber
August 9
Sell Rough Cut Lumber  (Alternative 1)  Process Further   to Finished Cut Lumber (Alternative 2) Differential Effect on income
Revenues, per 100 board ft. $540.00 $668.00 $128.00
Costs, per 100 board ft. (-)  $402.00 (-)  $523.00 (-)  $121.00
Income (loss), per 100 broad ft...

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