The Big Bear Lumber Company Is Trying to Decide Whether

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?