17-41. PROCESS FURTHER OR SELL, BYPRODUCT. (CMA, adapted) 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: Home Insert Page Layout Formulas Data Review View A B 1 Selling price of raw coal 2 Cost of producing raw coal 3 Selling price of sized and cleaned coal 4 Annual raw coal output 5 Percentage of material wasted in sizing/cleaning coal 6 $ 30 per ton $ 21 per ton $ 34 per ton 9,000,000 tons 6% 7 8 Direct labor 9 Supervisory personnel $ 790,000 Incremental Costs of Sizing & Cleaning Processes per year $ 190,000 per year 10 Heavy equipment rental, operating, maintenance costs 11 Contract sizing and cleaning $ 35,000 per month $ 3.30 per ton of raw coal 12 Outbound rail freight $ 250 per 600-ton rail car 13 14 Percentage of sizing/cleaning waste that can be salvaged for coal fines 15 Range of costs per ton for preparing coal fine for sale 75% $ 3 $ 5 16 Range of coal fine selling prices (per ton) $ 14 $25 Kimbell also learns that 75% of the material waste 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. 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 requirement 1.