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Cumberland Mining Company (CMC) mines coal, puts it through a one-step crushing process, and loads the bulk raw coal onto river barges for shipment to

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Cumberland Mining Company (CMC) mines coal, puts it through a one-step crushing process, and loads the bulk raw coal onto river barges for shipment to customers. CMC'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: (Click the icon to view the summary) (Click the icon to view additional information.) Read the requirements Requirement 1. Prepare an analysis to show whether it is more profitable for CMC to continue selling raw bulk coal or to process further through sizing and cleaning. (Ignore coal fines in your analysis.) Begin by calculating the incremental sales revenue, then incremental costs and finally incremental gain or loss. (Do not round until the final answer for each cost calculation, then round to the nearest dollar. Use parentheses or a minus sign for losses.) Incremental sales revenues: Sales revenue after further processing Sales revenue from bulk raw coal Incremental sales revenue Requirements 1. Prepare an analysis to show whether it is more profitable for CMC 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 $16 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 Data table 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 weight loss in sizing/cleaning coal 6 $27 per ton $23 per ton $39 per ton 10,500,000 tons 8 % Incremental Costs of Sizing & Cleaning Processes $800,000 per year $195,000 per year $30,000 per month $3.20 per ton of raw coal $220 per 60-ton rail car 7 Direct labor 8 Supervisory personnel 9 Heavy equipment: rental, operating, maintenance costs 10 Contract sizing and cleaning 11 Outbound rail freight Print Done - Data table 3 Selling price of sized and cleaned coal 4 Annual raw coal output 5 Percentage of material weight loss in sizing/cleaning coal 6 7 Direct labor 8 Supervisory personnel 9 Heavy equipment: rental, operating, maintenance costs 10 Contract sizing and cleaning 11 Outbound rail freight Percentage of sizing/cleaning waste that can be salvaged for coal 12 fines 13 Range of costs per ton for preparing coal fine for sale 14 Range of coal fine selling prices (per ton) $39 per ton 10,500,000 tons 8 % Incremental Costs of Sizing & Cleaning Processes $800,000 per year $195,000 per year $30,000 per month $3.20 per ton of raw coal $220 per 60-ton rail car 75% $2 $ 5 $17 $ 26 Print Done - More info Kimbell also learns that 75% of the material loss 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 and CMC may need to stockpile it in a protected area for up to one year. The selling price of coal fine ranges from 917 to 526 per ton and costs of preparing coal fines for sale range from $2 to $5 per ton. Print Done

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