Buffalo Mining Company (BMC) mines coal puts it through a one-stop crushing process, and loads the buik raw coal onto river barges for shipment to customers BMC's management is currently evaluating the possibility of further processing the raw coat 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 financial infeasible. Instead, Amy Kimbell a mining engineer, is asked to explore outside-contracting arrangements for the cleaning and sizing process. Kimboll put together the following summary: (Click the loon to view the summary) (Click the icon to view additional information.) Road the requirements Requirement 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 coalfines in your analysis) Begin by calculating the incremental sales revenue, then incremental costs and finally incremental gain or 105. (Do not round until the final answer for each cost calculation, then round to the nearest dollar. Une parentheses or a minus sign for losses) Incremental sales revenues Sales revenue after further processing Sales revenue from bulk raw coal Incremental sales revenue Incremental costs: Direct labor Supervisory personnel Heavy equipment costs Sizing and cleaning Outbound roll freight Incrementat costs Incremental gainoss) 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? Thalia er it is more profitable for then incremental costs and A sor B Selling price of raw coal $31 porton 2 Cost of producing raw coal $20 per ton 3 Selling price of sized and cleaned con $36 porton 4 Annual row coal Output 10.500.000 tons 5. Percentage of material weight loss in string cleaning coal / 10% Incremental Costs of Sizing & 8 Cleaning Processes 7 Direct labor 5810.000 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 per ton of ranco 11 Outbound rail freight $270 per 600 tonalar 12 Percentage of sizing cleaning waste that can be salvaged for coalfines 75% $3 S 4 13 Range of costs per ton for proparing coal fine for sale 14 Range of coal fine selling prices (perton) $16 $ 24 to if the cost of producing se decision to process he coalfines and prepare More info Si se 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 Anges from $16 to $24 per ton, and costs of preparing coal fines for sale range from $3 to $4 per ton
