ID: A The Big Bear Lumber Company is trying to decide whether to sell or process

Question

ID: A The Big Bear Lumber Company is trying to decide whether to sell or process further rou 12. joint cost of producing the rough-sawn lumber is $10,500. The following data are a gh-sawn lumber. The Lumber Type Incremental Cost to Process Further Number of Boards Selling Price per Board After Additional Processing 2,000 1,200 500 At Split-Off S 8 16 25 S12 20 30 $7,000 6,000 1,000 a. What is the incremental effect, increase or (decrease), on operating income of processing the lumber further of each lumber type? b. Which type of lumber should be processed further?

Explanation / Answer

Question a

Question b.

Lumber A and Lumber C is to be further processed since it has increasing value abd Lumber B has decreasing value.

At Split off Lumber Type A B C Number of boards 2000 1200 500 Selling price per board 8 16 25 Total Price 16000 19200 12500 Net Income 16000 19200 12500 Total Income 47700 Less Joint Cost 10500 Net Income 37200 Splitting based on number of boards A B C Net Income 20108 12065 5027

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