Portland Mining Company (PMC) mines coal, puts it through a one-step crushing process, and loads the bulk raw coal onto river barges for shipment to customers. PMC'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.) 1 Selling price of raw coal 2 Cost of producing raw coal A B $25 per ton $21 per ton 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 $35 per ton 9,500,000 tons 10% 0 Incremental Costs of Sizing & Cleaning Processes $825,000 per year $205,000 per year $15,000 per month $3.40 per ton of raw coal $280 per 600-ton rail car 10 Contract sizing and cleaning 11 Outbound rail freight 12 Percentage of sizing/cleaning waste that can be salvaged for coal fines 75% 13 Range of costs per ton for preparing coal fine for sale $3 14 Range of coal fine selling prices (per ton) $14 GA SA 5 24 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 $24 per ton, and costs of preparing coal fines for sale range from $3 to $5 per ton. 1. Prepare an analysis to show whether it is more profitable for PMC 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. Requirement 1. Prepare an analysis to show whether it is more profitable for PMC to continue selling raw bulk coal or to process it 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 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 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. Incremental income per ton Tons Minimum Maximum Incremental income Analysis indicates that relative to selling bulk raw coal, the effect of further processing and selling coal fines is benefit from further processing and selling the coal fines PMC would