Buffalo Mining Company (BMC) mines coal, puts it through a one-step crushing process, and loads the bulk raw coal onto river barges for shipment to customers BMC's management is currently evaluating the possibility of further processing the row 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 Kimboll, a mining engineer, is asked to explore outside-contracting arrangements for the cleaning and sizing process. Kimball put together the following summary: (Click the icon to view the summary) (Click the icon to view additional information) Read the cauicements Requirement 1. Prepare an analysis to show whether it is more profitable for UMC to continue selling raw bulk color to process it further through sizing and cleaning, (anore coalfines in your analysis.) Begin by calculating the incremental sales revenue, then incremental costs and finally Incremental gain or loss (Do not found until the final answer for each cont calculation, the round to the nearest dollar Uso parentheses or a minus sign for losos) Incremental sales revenues Salos revenue after further processing Salos revenue from bulk raw coal Incremental sales revenue Incremental costs Direct labor Supervisory personnel Heavy equipment costs Sizing and cleaning Outbound rail freight Incremental costs Incremental gain(loss) The analysis indicates that it would be more profitable to Requirement 2. How would your analysis be affected if the cost of producing raw coal could be held down to $18 per ton? The cost of producing the raw coal is to the decision to process further or not. This Waffect the analysis determined in requirement 1. Ranniamant Nu mneider the natural value the mallince and pronare an ardent that he hathair value offerte the route franare Pranaro BOL U Sad er, is asked to - gher prices. The plore outside-co (Click the icon ad the requiren Data table quirement 1.1 nore coal fines zing and clean or each cost gin by calculatid culation, then rd cremental sales Sales revenue 4 ales revenue fd Incrementals A B 1 Selling price of raw coal $31 porton 2 Cost of producing raw con $20 per ton 3 Selling price of sized and cleaned coal $36 per ton 4 Annual raw coal output 10,500,000 tons 5 Percentage of material weight loss in sizing/cleaning coal 10 % Incremental Costs of Sizing 6 & Cleaning Processes 7 Direct labor $810,000 per year 8 Supervisory personnel $215,000 per year 9 Heavy equipment: rental, operating, maintenance costs $30,000 per month 10 Contract sizing and cleaning $3.60 por ton of raw coal 11 Outbound rail freight $270 per 600-ton rail car 12 Percentage of sizing/cleaning waste that can be salvaged for coal fines 75% $3 $ 13 Range of costs per ton for preparing coal fine for sale $16 s 24 14 Range of coal fine selling prices (per ton) remental costs irect labor upervisory per eavy equipmed zing and clear 4 utbound rail free Incremental cd emental gain analysis indic Print Done uirement 2. H ht 1. cost of produd that shows how their abia affarte the route of uri analvelee Requirements 1. Prepare an analysis to show whether it is more profitable for BMC 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 $18 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. Print Done Heavy equipment costs Sizing and cleaning Outbound rail freight Incremental costs Incremental gain(loss) The analysis indicates that it would be more profitable to Requirement 2. How would your analysis be affected if the cost of producing raw coal could be held down to $18 per ton? The cost of producing the raw coal is to the decision to process further or not. This affect the analysis determined in requirement 1. Requirement 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. Begin by calculating the incremental income at both the minimum and maximum income levels Minimum Maximum Incremental income per ton Tons Incremental income Analysis indicates that relative to selling bulk raw coal, the effect of further processing and selling coal fines is V.BMC would benefit from further processing and selling the coal fines
