Donder Milling Company purchases logs and mills them into various grades of lumber. During the sawing and planning process, a considerable amount of sawdust is generated. Currently, Donder sells the sawdust to a particle board manufacturer for $50 per truckload. Donder is considering processing the sawdust into particle board itself. One truckload of sawdust can be made into 20 sheets of particle board selling for $8 per sheet. Further processing costs are $7 per board.
-Refer to the Figure.Should Donder process the sawdust into particle board,and what would be the effect on income?
A)No, income will decrease by $50 per truckload of sawdust.
B)No, income will decrease by $30 per truckload of sawdust.
C)Yes, income will increase by $20 per truckload of sawdust.
D)Yes, income will increase by $50 per truckload of sawdust.

Question

Quizplus · Accepted Answer

The revenue from selling 20 sheets of particle board is $160 (20 sheets x $8). The cost to process is $140 (20 sheets x $7). The net income from processing is $20 ($160 - $140). Selling sawdust directly gives $50, so processing decreases income by $30 ($50 - $20).

Donder Milling Company Purchases Logs and Mills Them into Various