The Gringott's Mine extracts gold in central London. Each tonne mined is 40% Grade F (fine) gold, 40% Grade VG (very good) gold, and 20% gold alloy (not so great, but still shiny and good for making things a gold colour). Output usually sells within two months. In January, Gringott's mined 1,000 tonnes of gold. It spent 10,000 on the mining process. Grade F gold sells for 1000 per tonne. Grade VG gold sells for 60 per tonne. Gringott's gets one-quarter of a vat of gold alloy from each tonne of gold processed. The gold alloy sells for 60 per vat.

Bogrod, the head goblin at Gringott's bank has been approached by one of his workers, Gornok, with a proposal to further process Grade VG gold into Galleons on-site. Gornok insists this is a good idea since idle goblin-hours (labour-hours) are available. The process would cost 6000 with no loss in volume. One tonne of Grade VG gold makes 108,000 Galleons.

Currently, Gringott's sells gold to the Muggle Mint for processing into Galleons (currency; think about a minesellingmoneytoabank;theyareoutsourcingprocessingofgoldintocoins). TheMuggleMintsells Galleons back to Gringott's for a price of 5.50 per100 Galleons (ie. Gringott's is buying back the finished product from the Mint. With Gornok's suggestion they would be able to by-pass this and complete the entire process on their own).

1. Draw a diagram to depict this process. Be sure to label all the relevant product categories, key points in the process, and related costs for each stage and output. Show your work. *you may draw and scan a photo of a diagram and paste it in your excel tab for this question*
2. With respect to Gornok's suggestion: List and explain the costs that are relevant to Bogrod's decision. If a cost is not relevant,explain why using simple terminology that Bogrod will understand. Remember, he has never taken a cost accounting course (or any course for that matter).
3. Should Bogrod bring Galleon production in house? Support your answer with a balanced analysis of both quantitative and qualitative factors.