Figure 13-8. Kerrigan Lumber Yard receives 12,000 large trees each year that they process into rough logs. Currently, Kerrigan sells the rough logs for $75 each. Kerrigan is considering processing the logs further into refined lumber. Each log can be processed into 200 feet of refined lumber at an additional cost of $0.40 per foot. The refined lumber can be sold for $0.95 per foot.
-Refer to Figure 13-8. Assume that the cost of getting the 12,000 large trees falls by half. Should Kerrigan sell the rough logs at split-off or process it further?
A) Process further, the reduction in the cost of trees makes that option more profitable than it was before.
B) Sell at split-off because the decrease in the cost of the trees makes that option more profitable than it was before.
C) Sell at split-off, the reduction in the cost of the trees is irrelevant.
D) Process further, the reduction in the cost of the trees will lower further processing costs.
E) Process further because the reduction in the cost of the trees is irrelevant.

Question

Quizplus · Accepted Answer

The decision to process further or sell at split-off should be based on the incremental profit from further processing, which is unaffected by the cost of acquiring the trees.