Reference no: EM132581723
Vigdor processes cut trees into various wood products, veneers, lumber, wood chips, and so forth. Each of the products can be sold immediately upon processing the trees, or processed further and sold as a finished product. The following table lists the five products produced from each batch of trees, the tons of each product per batch, and the prices for the intermediate and finished products. The net cash outflow to convert each intermediate product into a finished product is $12 per ton. The net cash outflow to process one batch of trees into the five separate wood products is $800.
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Outputs
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Number of tons per batch
|
Intermediate sales (price/ton)
|
Finished sales (price/ton)
|
|
A342
|
1
|
$75
|
$88
|
|
A453
|
2
|
68
|
82
|
|
B691
|
4
|
62
|
73
|
|
B722
|
3
|
60
|
71
|
|
C132
|
6
|
40
|
57
|
Required:
Question a. Given that Vigdor processes batches of trees into the five wood products, which of the five wood products should be sold as intermediate products (i.e., not processed further), and which ones should be sold as finished products (i.e., processed further)?
Question b. If Vigdor's cost to process trees into the five wood products is $800, should Vigdor process trees?
Question c. Assuming that the quantities and prices in the preceding table do not change, how high can the $800 cost to process one batch rise before Vigdor stops processing trees into the five wood products?
Question d. Assuming that the cost to process trees into the five wood products is $800, and given your decisions in part (a), calculate the profit per ton of each of the five wood products after allocating the $800 processing cost to the five wood products using:
(1) Tons of wood products produced.
(2) Net realizable value of wood products produced.
Question e. Given the allocations of the $800 cost of processing trees in part (d), would you want to change any of your decisions in part (a), assuming your objective is to maximize the net cash flows for Vigdor?
Question f. Describe how the allocation of the $800 cost of processing trees into the five wood products affected your decisions in parts (a) and (b).