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?