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SELL OR PROCESS FURTHER Andre operates a sawmill that produces chips of bark as a by-product of sawing wood. Delaney sells to chips to another
SELL OR PROCESS FURTHER Andre operates a sawmill that produces chips of bark as a by-product of sawing wood. Delaney sells to chips to another company at a price of $0.12 per cubic foot of bark. In a typical month, Andre sells $900,000(7,500,000 cubic feet) worth of bark. Andre is considering renting equipment that would process the chips of bark and then bag them for sale to landscapers. Costs to rent the equipment to process and bag the bark and the costs of the personnel to operate the equipment are $500,000 per month. These costs are fixed regardless of the amount or type of bark that Andre processes. The only variable cost to process the bark is the bag, which costs $0.05 per cubic foot of bark. In a typical month, Andre estimates that 30 percent of the chips would carry a grade of "Large" and sell for $0.32 per cubic foot and that 70 percent of the chips would carry a grade of "Small" and sell for $0.16 per cubic foot. Assuming a typical month, what is the NOI advantage or disadvantage of processing 7,500,000 cubic feet of bark into landscaping chips
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