Question

Woody, Inc. processes wooden logs into boards and sawdust. A wooden log costs $10 to buy from log cutters and $6 to process to the splitoff point. The boards can be sold at the splitoff point for $12 or processed further for $10 to make a finished board that is sold for $18. The saw dust can be sold at the splitoff point for $5 or processed further for $3 to make wood pellets (used in wood-burning heaters) that is sold for $10. What is the financial advantage (disadvantage) for the company from processing the sawdust into wood pellets rather than selling it as is?

Multiple Choice

• $(14)

• $2

• $(4)

• $(2)

Answer 1

$2

	Sold at Split off	Processed further	Advantage
Selling price	$                         5	$                            10
Less - Cost for processing	$                        -	$                            (3)
Net Income	$                         5	$                               7	$                2