Williams Inc. operates a sawmill facility. The company accounts for the sawdust that result from the primary sawing operation as
a by-product. The sawdust is sold to another company at a price of $1.00 per hundred cubic feet. Normally sales revenue from the sawdust is $21200 per month.
The sawdust is charged to inventory at $2.20 per hundred cubic feet although there is no direct cost to process it. As an alternative the company can rent equipment that will process the dust into imitation logs
for fireplaces. These logs sell for $25.00 per hundred to wholesalers who package and scent them. 75 logs can be produced from 100 cubic feet of
sawdust. Cost of the equipment to produce these logs and the additional
personnel required to operate the equipment are $360000 per month regardless of the output. Required: A) Should the company sell the sawdust for $1.00
per hundred cubic feet or process it into imitation logs? Support your answer with the appropriate calculations.
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