APPLY THE CONCEPTS: Calculate differential cost in a sell-or-process-further dec
ID: 2494608 • Letter: A
Question
APPLY THE CONCEPTS: Calculate differential cost in a sell-or-process-further decision
Galaxy Corporation buys cedar logs. It removes the bark and cuts each log into cedar planks. It can sell each plank for $40. The cost to produce each plank is $12. GalaxyCorporation has the opportunity to use these planks to make cedar canoes. It takes 10 cedar planks to make one cedar canoe and requires an additional $1,200 in production costs. A cedar canoe can be sold for $1,400. The differential cost of making one cedar canoe is $ _________________ .
APPLY THE CONCEPTS: Calculate differential income in a sell-or-process-further decision
Complete the table to compare the effects of selling at the split-off point or processing further. In the Differential Effect on Income (Canoe) column. Enter all amounts as positive numbers except for a net loss.
Based on the analysis, Galaxy Corporation should _________________ . If Galaxy processes the planks into canoes, its overall income will _________________ by $ _________________ per canoe.
Alternatives Differential EffectIncrease/Decease (Canoe) Ten Planks One Canoe Sales $ _________________ $ _________________ $ _________________ Costs _________________ _________________ _________________ Net income (loss) $ _________________ $ _________________ $ _________________
Explanation / Answer
Should not further process the canoes
Income will decrease by $ 200 per canoe.
Alternatives Differential effect (Increase or decrease) Ten planks one canoe sales 40*10 =400 1400 1000 cost 12*10 = (120) 120+1200 = (1320) (1200) net income /(loss) 280 80 (200)