Primrose Yard receives 15,000 large trees each year that they process into 15,000 rough logs.Currently, Primrose sells the rough logs for $50 each.Primrose is considering processing the logs further into refined lumber.Each log can be processed into 350 feet of refined lumber at an additional cost of $0.20 per foot.The refined lumber can be sold for $0.80 per foot.
Assume that the cost of getting the 15,000 large trees falls by half.Should Primrose sell the rough logs at split-off or process it further?
A) It should process further because the reduction in the cost of trees makes that option more profitable than it was before.
B) It should sell at split-off because the decrease in cost price will increase the selling price of the logs.
C) It should sell at split-off because the reduction in the cost of the trees is irrelevant.
D) It should process further because the cost reduction will decrease the processing cost.
E) It should process further because the reduction in the cost of the trees is irrelevant.

Question

Primrose Yard receives 15,000 large trees each year that they process into 15,000 rough logs.Currently, Primrose sells the rough logs for $50 each.Primrose is considering processing the logs further into refined lumber.Each log can be processed into 350 feet of refined lumber at an additional cost of $0.20 per foot.The refined lumber can be sold for $0.80 per foot.  
Assume that the cost of getting the 15,000 large trees falls by half.Should Primrose sell the rough logs at split-off or process it further? 
A) It should process further because the reduction in the cost of trees makes that option more profitable than it was before.
B) It should sell at split-off because the decrease in cost price will increase the selling price of the logs.
C) It should sell at split-off because the reduction in the cost of the trees is irrelevant.
D) It should process further because the cost reduction will decrease the processing cost.
E) It should process further because the reduction in the cost of the trees is irrelevant.

Quizplus · Accepted Answer

Total number of trees processed into rough logs = 15,000 trees
Sale price of rough log = $50 each
Further processing cost of each log = Refined lumber per log × Per foot processing cost
Further processing cost of each log = 350 feet × $0.20 = $70
Sale price of refined lumber per log = Refined lumber per log × Per foot sale price
Sale price of refined lumber per log
= 350 feet × $0.80 = $280
?Profit per log from further processing into refined lumber = Sale price of refined lumber per log ? Further processing cost of each log = $280 ? $70 = $210
Primrose should further process the rough logs into refined lumber because it will make $210 per log versus the $50 it would make by selling per rough log.
The cost of the trees is common cost.So, reduction in the cost of the trees is irrelevant.

Primrose Yard Receives 15,000 Large Trees Each Year That They