Oakridge Lumber Company incurs a cost of $412 per hundred board feet in processing certain “rough-cut” lumber, which it sells

Oakridge Lumber Company incurs a cost of $412 per hundred board feet in processing certain “rough-cut” lumber, which it sells for $586 per hundred board feet. An alternative is to produce a “finished cut” at a total processing cost of $536 per hundred board feet, which can be sold for $755 per hundred board feet. Prepare a differential analysis dated June 14, 2014, on whether to sell rough-cut lumber (Alternative 1) or process further into  finished-cut lumber (Alternative 2).


Answer:

Differential Analysis 
Sell Rough Cut (Alt. 1) or Process Further into Finished Cut (Alt. 2) 
June 14, 2014 


Sell Rough 
Cut 
(Alternative 1) 
Process 
Further into 
Finished Cut 
(Alternative 2) 
Differential 
Effect 
on Income 
(Alternative 2) 
Revenues, per 100 board ft. $586 $755 $169 
Costs, per 100 board ft. –412 –536 –124 
Income (Loss), per 100 board ft. $174 $219 $  45 
    
Oakridge Lumber Company should process further and sell finished-cut lumber.