Answered: Sell or Process Further Bunyon Lumber…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Sell or Process Further

Bunyon Lumber Company incurs a cost of $378 per hundred board feet (hbf) in processing certain "rough-cut" lumber, which it sells for $560 per hbf. An alternative is to produce a "finished cut" at a total processing cost of $526 per hbf, which can be sold for $778 per hbf.

2. Decision on Accepting Additional Business

Country Jeans Co. has an annual plant capacity of 65,300 units, and current production is 46,300 units. Monthly fixed costs are $39,700, and variable costs are $25 per unit. The present selling price is $33 per unit. On November 12 of the current year, the company received an offer from Miller Company for 17,000 units of the product at $26 each. Miller Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Country Jeans Co.

Sell or Process Further
Bunyon Lumber Company incurs a cost of $378 per hundred board feet (hbf) in processing certain "rough-cut" lumber, which it sells for $560 per hbf. An alternative
is to produce a "finished cut" at a total processing cost of $526 per hbf, which can be sold for $778 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). For
those boxes in which you must enter subtracted or negative numbers use a minus sign.
Differential Analysis
Sell Rough-Cut (Alt. 1) or Process Further into Finished Cut (Alt. 2)
August 9
Process
Differential
Sell
Further into
Effect
Rough-Cut
Finished Cut
on Income
(Alternative 1)
(Alternative 2) (Alternative 2)
Revenues, per 100 board ft.
$
$4
2$
Costs, per 100 board ft.
Income (Loss), per 100 board ft. $
Determine whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

Transcribed Image Text:Decision on Accepting Additional Business Country Jeans Co. has an annual plant capacity of 65,300 units, and current production is 46,300 units. Monthly fixed costs are $39,700, and variable costs are $25 per unit. The present selling price is $33 per unit. On November 12 of the current year, the company received an offer from Miller Company for 17,000 units of the product at $26 each. Miller Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Country Jeans Co. a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Miller order. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Differential Reject Аcсеpt Effect Order Order on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable manufacturing costs Income (Loss) b. Having unused capacity available is to this decision. The differential revenue is than the differential cost. Thus, accepting this additional business will result in a net c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places. 2$

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