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7 January, 08:05

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. Should Kerrigan process the rough logs into refined lumber?

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  1. 7 January, 08:26
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    Yes: It increases revenue by $35 per log.

    Explanation:

    Yes: It increases revenue by $35 per log.

    Revenue from the sale of plain logs

    =12, 000 x $75

    =$900,000

    Revenue from refined logs

    Each log can produce 200 feet of lumber feet

    Total lumber feet will be

    =12,000 x 200

    =2,400,000.00

    Net revenue from the lumbers per feet is the selling price - cost

    =$0.95 - $0.40

    =$0.55 per feet

    Total revenue

    =$0.55 x 2,400,000

    =$1,320,000

    The difference is revenue from the refined lumber and the logs

    =$1,320,000 - $900,000

    =$420,000

    Increase in revenue per log

    =$420,000/12000 logs

    =$35 per log
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