The Paper Processing Company (PPC) produces large rolls of white paper weighing 1,000 kilograms for wholesalers for $1,500 each. The wholesalers then cut the paper into standard-sized sheets and package it in 2-kilogram packages. These packages are sold to printers for $4.00 per package. There is no waste in the cutting process. PPC currently produces 5 million kilograms of paper annually at a fixed cost of $1 Million and variable cost of $0.80 per kilogram. The Marketing manager, the Operations manager and You, the Controller, is discussing further processing some of the paper - 60%, to sell directly to the printers. If PPC bypasses the wholesalers and cuts its own paper to sell directly to the printers, PPC would have to add equipment and personnel with an annual fixed cost of $650,000. Incremental variable cost would be $0.10 per kilogram. The Operations manager also indicated that for each 100,000 kg' processed into sheets, the finished goods inventory can be reduced by $50,000, to a maximum of 500,000 kg's. The warehouse is currently near fuill, and as a result, approximately 2% of finished goods inventory is damaged each year. Required: 1. What is the impact on profit if PPC decides cut it's own paper to sell to the wholesalers, and how much paper should be process and sold as sheets? (DO NOT CONSIDER FINISHED GOODS and DAMAGES) 2. Quantify and discuss the impact of the decision to produce sheets based on the Operations manager's comments about the finished goods and damages.