Question

ABC Lumber spent $1,000 cutting down a tree. The result was 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. If the unfinished pieces of lumber are processed into finished lumber at a cost of $8.00 each, they will sell for $35.00. A bag of sawdust can be processed into Presto Logs that sells for $1.25 at a cost of $0.75 per bag. Which statements are true concerning whether the unfinished pieces of lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs?

Answer 1

To determine whether the unfinished lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs, we need to calculate the costs and revenues for each option.

Step-by-step explanation:

In order to determine whether the unfinished pieces of lumber should be processed into finished lumber and whether the sawdust should be processed into Presto Logs, we will calculate the costs and revenues for each option.

For the unfinished lumber, the cost of processing each piece is $8.00, and it can be sold for $35.00. Therefore, the profit per piece is $35.00 - $8.00 = $27.00.

For the sawdust, the cost of processing each bag into Presto Logs is $0.75, and they can be sold for $1.25. Therefore, the profit per bag is $1.25 - $0.75 = $0.50.

Based on these calculations, it is profitable to process the unfinished lumber into finished lumber as the profit per piece is higher compared to the profit per bag of sawdust.

However, whether to process the sawdust into Presto Logs depends on the overall profitability and demand for the product.