Rochester Mining Company (RMC) mines coal, puts it through a one-step crushing process, and loads the bulk raw coal onto river barges for shipment to customers. RMCs 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.

Selling Price of raw coal	$26	Per ton
Cost of producing raw coal	$23	Per ton
Selling price of sized and cleaned coal	$36	Per ton
Annual raw coal output	9,500,000	Tons
Percentage of material weight loss in sizing/cleaning coal	8%
		Incremental costs of sizing and cleaning processes
Direct labor	$805,000	Per year
Supervisory personnel	$210,000	Per year
Heavy equipment: rental, operating, and maintenance costs	$30,000	Per month
Contract sizing and cleaning	$3.30	Per ton of raw coal
Outbound rail freight	$250	Per 60-ton rail car
Percentage of sizing/cleaning waste that can be salvaged for coal fines	75%
Range of costs per ton for preparing coal fine for sale	$2	$6
Range of coal fine selling prices (per ton)	$14	$22

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 RMC may need to stockpile it in a protected area for up to one year. The selling price of coal fines ranges from $14 to $22 per ton and the costs of preparing coal fines for sale range from $2 to $6 per ton.

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 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

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.