Question

Jack's Lumber Yard receives 8,000 large trees each period that it subsequently processes into rough logs by stripping off the tree bark and leaves (i.e., one tree equals one log). Jack's then must decide whether to sell its rough logs (for use in log cabin construction) at split-off or to process them further into refined lumber (for use in regular construction framing). Jack's normally sells logs for a per-unit price of $495. Alternately, each log can be processed further into 800 board feet of lumber at an additional cost of $0.15 per board foot. Also, lumber can be sold for $0.75 per board foot. Required: 1. What is the contribution to income from selling the logs for log cabin construction

Answer 1

Answer:

1. $3,960,000

2. $3,840,000

3. Sell the logs.

Step-by-step explanation:

The questions are incomplete:

1. What is the contribution to income from selling the logs for log cabin construction?

2. What is the contribution to income from processing the logs into lumber?

3. Should Jack’s continue to sell the logs or process them further into lumber?

1. The contribution income is the total income generated by the sales of the rough logs. Each one contributes with $495.

Contribution to income (log cabin construction) = $495*8,000 = $3,960,000

2. In this case, we have to calculate what is the profit after processing each board, then multypling by the amount of boards per log and lastly multiplying by the total amoun of logs.

Contribution to income (processed board) = $(0.75-0.15)*800*8000

Contribution to income (processed board) = $0.6*800*8000

Contribution to income (processed board) =  $480*8000 = $3,840,000

3. Jack should continue to sell logs for cabin construction because the profit per log is higher than for the processed board ($495/log versus $480/log).