Calculating Profitability and Operating Income for British Columbia Lumber
Should British Columbia Lumber process raw lumber into its finished form? Show your calculations.
Based on the given information, is it profitable for British Columbia Lumber to process raw lumber into its finished form?
Answer:
It is not profitable for British Columbia Lumber to process raw lumber into its finished form. The incremental revenue gained from selling finished lumber is only $15, which is less than the incremental cost of $170, resulting in a loss of $155.
British Columbia Lumber should not process raw lumber into its finished form because the incremental cost exceeds the incremental revenue. Processing raw lumber further into finished lumber results in a loss for the company.