The Big Bear Lumber Company Is Trying to Decide Whether

question 3

Essay

The Big Bear Lumber Company is trying to decide whether to sell or process further rough-sawn lumber. The joint cost of producing the rough-sawn lumber is $10,500. The following data are available:
$$\begin{array} { | c | c | c | c | c | } \hline \begin{array} { c } \text { Lumber } \\\text { Type }\end{array} & \text { Number of Boards } & { \text { Selline Price per Baard } } & \begin{array} { c } \text { Incremental } \\\text { Cast to Pracess } \\\text { Further }\end{array} \\\hline && & \text { After } & \\ & & \text { At Split-Off } & \begin{array} { c } \text { Additional } \\\text { Pracessing }\end{array} & \\\hline \text { A } & 2,000 & \$ 8 & \$ 12 & \$ 7,000 \\\hline \text { B } & 1,000 & 16 & 20 & 6,000 \\\hline \text { C } & 500 & 25 & 30 & 1,000 \\\hline\end{array}$$
a. What is the incremental effect, increase or (decrease), on operating income of processing the lumber further?
b. Which type of lumber should be processed further?

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Definitions:

Utility Costs

Expenses associated with services such as electricity, water, gas, and sewage required for the operation of a home or business.

Lease Modification

Changes made to the terms of a lease agreement, often involving negotiations between the lessee and lessor.

Bound Agreement

A legally binding contract or arrangement between parties.

Illusory Promise

An agreement that lacks a true commitment from the promisor, making it unenforceable as a contract.