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?

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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