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Williams, Inc. operates a sawmill facility. The company accounts for the sawdust that result from the primary sawing operation as a by-product. The sawdust is sold to another company at a price of $1.00 per hundred cubic feet. Normally, sales revenue from

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Question

Williams, Inc. operates a sawmill facility. The company accounts for the sawdust that result from the primary sawing operation as a by-product. The sawdust is sold to another company at a price of $1.00 per hundred cubic feet. Normally, sales revenue from the sawdust is $21,200 per month. The sawdust is charged to inventory at $2.20 per hundred cubic feet, although there is no direct cost to process it. As an alternative, the company can rent equipment that will process the dust into imitation logs for fireplaces. These logs sell for $25.00 per hundred to wholesalers, who package and scent them. 75 logs can be produced from 100 cubic feet of sawdust. Cost of the equipment to produce these logs and the additional personnel required to operate the equipment are $360,000 per month, regardless of the output. Required: A) Should the company sell the sawdust for $1.00 per hundred cubic feet or process it into imitation logs? Support your answer with the appropriate calculations.

 

Paper#80362 | Written in 18-Jul-2015

Price : $22
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