The Big Bear Lumber Company Is Trying to Decide Whether

question 39

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:
$\begin{array}{|c|c|c|c|c|}\hline \text { Lumber Type } & \text { Nunber of Boards } & \text { Selling Price per Board } & \begin{array}{l}\text { Tncremental Cost to } \\\text { Process Further }\end{array} & \\\hline & & \text { At Split-Off } & \begin{array}{l}\text { After Additional } \\\text { Processing }\end{array} & \\\hline \text { A } & 2,000 & \$ 8 & \$ 12 & \$ 7,000 \\\hline \text { B } & 1,000 & 16 & 20 & 6,000 \\\hline \mathrm{C} & 500 & 25 & 30 & 1,000 \\\hline\end{array}$
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:

Projection

The act of estimating or forecasting future outcomes based on current or past data.

Selective Perception

The cognitive process by which individuals perceive what they want in the mass of stimuli around them, ignoring other information.

Interest

The sensation of being curious to acquire knowledge or information about someone or something.

Perception

The way in which something is regarded, understood, or interpreted by an individual or group.