Georgia Products, Inc., operates a sawmill facility. The company accounts for the bark chips that result from
Question:
Georgia Products, Inc., operates a sawmill facility. The company accounts for the bark chips that result from the primary sawing operation as a by-product. It sells the chips to another company at a price of
$24 per hundred cubic feet. Normally, sales revenue from this bark is $1,800,000 per month. The customer loads and transports the bark at no cost to Georgia Products.
As an alternative, the company can rent equipment that will process the chips and bag them for sale as decorative garden mulch. Approximately 30 percent of the bark will be graded “large” and will sell for $64 per hundred cubic feet. About 60 percent will be graded “medium” and will sell for $32 per hundred cubic feet. The remainder will be sold as mulch for $8 per hundred cubic feet.
Costs of the equipment to process and bag the chips and the personnel to operate the equipment total $1,040,000 per month, regardless of the amount of bark processed.
Required Assuming a typical month, prepare a memo to Georgia Products’ management that demonstrates whether the company should sell the bark for $24 per hundred cubic feet or process it further.
Step by Step Answer:
Cost Management Strategies For Business Decisions
ISBN: 12
4th Edition
Authors: Ronald Hilton, Michael Maher, Frank Selto