1.You have been asked by the Manager to go over a business proposal from a prospective Business Partner. This partner will supply all the Raw Materials, and we supply the equipment and the labour. We are forecasting to employ at least 8 workers to run the Sawmill.

Relevant Financial Data:

Capital Investment (depreciated over 36 months):

Cost of Equipment$36,000

Shed$18,000

Operating Expenses (Annual Cost):

Maintenance cost of Equipment$12,000

Supplies and Materials$7,800

Employee Protective Clothing$4,200

Annual Salary Costs:

Instructor Salary$54,000

Benefits$6,000

Employee allowance$1,200

Production on the machine ranges from a minimum of 1,000 board feet to a maximum of 3,000 board feet per day.

a)Please determine the cost, per board feet, that we have to charge in order to cover the overhead cost of operating the Sawmill, at the minimum production rate, and the maximum production rate. Include in your analysis the monthly break down of salary, capital and operating expenses.Assume 20 working days in each month.

Response: ___

b)The Business Partner is considering two options:

To operate their own Lumber Yard, and contract CORCAN to process the logs, and they sell the finished products themselves for profit

Or to sell the raw materials to CORCAN.Then, CORCAN sell the processed wood products for our profit

The CORCAN Operations Manager is requesting your recommendation on which option would result in the best opportunity.

Please analyse the benefits and risks of both options for CORCAN keeping in mind our mandate.

Response: ___