Structuring the Sell-or-Process-Further Decision Jack\'s Lumber Yard receives 8,
ID: 2371022 • Letter: S
Question
Structuring the Sell-or-Process-Further Decision
Jack's Lumber Yard receives 8,000 large trees each period that it subsequently processes into rough logs by stripping off the tree bark and leaves (i.e., one tree equals one log). Jack's then must decide whether to sell its rough logs (for use in log cabin construction) at split-off or to process them further into refined lumber (for use in regular construction framing). Jack's normally sells logs for a per-unit price of $500. Alternately, each log can be processed further into 800 feet of lumber at an additional cost of $0.15 per board foot. Also, lumber can be sold for $0.75 per board foot.
Explanation / Answer
Cont per feet post split-off is 0.75-0.15 = 0.60.
No of feet = 8000*800 = 6,400,000 feet
So Rev from processing after split-off = 6400,000*$0.60 = $3840,000
If Sold at SPlitoff, Rev = 8000*$500 = $4000,000
SO It is better to sell at Splitoff for revenue of $4000,000