Tembec buys pine logs and saws them into boards of two grades: A and B. The grade is determined by factors such as the number of knotholes and quality of the grain. Bark and shavings are also produced as a result of the sawing operation. On average, a log yields 35 percent A-grade boards, 55 percent B-grade boards, and 10 percent bark and shavings. Charles Merchant, the owner, just received the income statement for the sawmill, shown below, which represents a typical month's operations. Charles expects similar results in the foreseeable future.
Sawing costs include wages, depreciation, and other non-itemized costs of running the saw- mill. The costs of logs and of sawing were allocated according to volume (35 percent, 55 percent, 10 percent). Trimming, sanding, and shipping costs were direct and avoidable. Charles was disturbed at the results. He told an employee, "The bark and shavings are really hurting me. I'd be better off throwing the stuff out."

Required:
1. Should Charles throw away the bark and shavings? Provide a financial analysis of the effect on Charles's profit if the bark and shavings are thrown out rather than sold.
2. Identify other considerations that would be relevant to Charles's decision.

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Bark and Grade A Grade B Shavings Total $ 3,000 Sales $36,000 $41,000 $80,000 Costs: Logs Sawing Trimming Sanding Shipping 14,700 5,950 2,340 23,100 4,200 1,700 42,000 9,350 17,000 3,200 7,700 4,500 860 4,320 1,550 28,860 $ 7,140 3,380 2,430 39,120 S 1,880 520 Total Costs 6,420 S(3,420) 74,400 S 5,600 Income (loss)