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 $8.00 each, they will sell for $35.00. A bag of sawdust can be processed into Presto Logs that sell for $1.25 at a cost of $0.75 per bag. Which of the following 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?

a.) The pieces of unfinished lumber should be processed. b.) The sawdust should be processed into Presto Logs
c.) The sawdust should be sold as is without being processed into Presto Logs.
d.) The $1,000 cost for cutting down the tree is relevant to the decision.
e.) The pieces of lumber should be sold as is without being processed into finished lumber.

Answer 1

The decision of whether to process the unfinished lumber and sawdust depends on comparing the costs and revenues associated with each option. Selling the unfinished lumber without processing it is more profitable, while processing the sawdust into Presto Logs is more profitable than selling it as is. Option b

Step-by-step explanation:

The decision of whether to process the unfinished pieces of lumber into finished lumber and whether to process the sawdust into Presto Logs can be determined by comparing the costs and revenues associated with each option.

To determine whether the unfinished pieces of lumber should be processed, we compare the revenue from selling the unfinished lumber as is ($20.00 per piece) with the cost of processing it into finished lumber ($8.00 per piece). If the revenue from selling the unfinished lumber is greater than the cost of processing it, then it should be processed.

In this case, 40 pieces of unfinished lumber would generate $800 in revenue if sold as is, while processing them into finished lumber would cost $320. Therefore, it is more profitable to sell the unfinished lumber as is.

To determine whether the sawdust should be processed into Presto Logs, we compare the revenue from selling the sawdust as is ($1.00 per bag) with the revenue from processing it into Presto Logs ($1.25 per bag). If the revenue from processing the sawdust into Presto Logs is greater than the revenue from selling it as is, then it should be processed.

In this case, 100 bags of sawdust would generate $100 in revenue if sold as is, while processing them into Presto Logs would generate $125 in revenue. Therefore, it is more profitable to process the sawdust into Presto Logs. Option b