Newcastle Mining Company (NMC) mines coal, puts it through a one-step crushing process, and loads the bulk raw coal onto river barges for shipment to customers.

NMC’s management is currently evaluating the possibility of further processing the raw coal by sizing and cleaning it and selling it to an expanded set of customers at higher prices. The option of building a new sizing and cleaning plant is ruled out as being financially infeasible. Instead, Amy Kimbell, a mining engineer, is asked to explore outside-contracting arrangements for the cleaning and sizing process. Kimbell puts together the following summary:

Kimbell also learns that 75% of the material loss that occurs in the cleaning and sizing process can be salvaged as coal fines, which can be sold to steel manufacturers for their furnaces. The sale of coal fines is erratic and NMC may need to stockpile them in a protected area for up to one year. The selling price of coal fines ranges from $ 14 to $ 25 per ton and costs of preparing coal fines for sale range from $ 3 to $ 5 per ton.

Required
1. Prepare an analysis to show whether it is more profitable for NMC to continue selling raw bulk coal or to process it further through sizing and cleaning. (Ignore coal fines in your analysis.)
2. How would your analysis be affected if the cost of producing raw coal could be held down to $ 20 per ton?
3. Now consider the potential value of the coal fines and prepare an addendum that shows how their value affects the results of your analysis prepared in requirement1.

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$30 per bn $21 per bn 34per tbn Cost of producing raw coa Seling price of sized and cleaned coal Annual raw coal output Peroentage of material weight loss in sizing/cleaning coal 9000,000 tons Incremental Costs of Sizing & Cleaning Processes S790,000 per year $190,000 per year $35,000 per manth Direct labor Supervisory persannel Coanaetbuang andcoeanaerain manian s$5.0 $3.30 per ton of raw coa Outbound ral freight Percentage of sizing/dleaning waste that can be salvaged for coal fines Range of costs per ton for preparing coal fine for sale Range of coal fine selling prices (per ton) S250 per 600-bn rail car 75% $14 $25