Structuring the Sell-or-Process-Further Decision Jack%u2019s Lumber Yard receive
ID: 2376262 • Letter: S
Question
Structuring the Sell-or-Process-Further Decision
Jack%u2019s Lumber Yard receives 8,000 large trees each period that it subsequently processes into rough logs by stripping off the tree bark and leaves. Jack%u2019s 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%u2019s normally sells logs for a per-unit price of $495. Alternately, each log can be processed further into 800 feet of lumber at an additional cost of $0.05 per board foot. Also, lumber can be sold for $0.75 per board foot. (Note: One tree is equal to one rough log.)
1. What is the total contribution to income from selling the logs for log cabin construction?
$
2. What is the total contribution to income from processing the logs into lumber?
$
3. Should Jack's continue to sell the logs or process them further into lumber?
Explanation / Answer
1) 495*8000=4,000,000 = 3960000
2) Contribution to income from processing the logs into lumber = 8000*800*(.75 - .05) = 4480000