Question

100% 442 Student Assignment 7 F19 - Saved to my Mac View es Mailings Review AO E 21 AalbCode AaBbCcD AaBbCcDdE Emphasis AaBbcc Strong Heading 1 Normal 1) Greg was talking to his neighbour one day and the conversation turned to the neighbour's very large, very old tree that was apparently dead. The neighbour was concerned that the tree would fall on his house, causing major damage. Greg immediately saw an opportunity to make some extra cash. He offered to have the tree removed if he could keep the wood from the tree. The neighbour agreed Greg paid $5,000 to an arborist to cut the tree down, and slice it into "cookies, i.e. cross sections of the trunk about three inches thick. The tree yielded 70 cookies. Greg planned to attach legs to the cookies and sell them as live-edge coffee tables. To dry the cookies properly, Greg stored them in a climate-controlled facility that he rented for $100 per month. Greg planned to store the cookies for three months, but he became busy and three months stretched into 14 months. When Greg finally examined the cookies, he found that seven of them did not dry properly and were useless. Even worse, he had to pay $100 to dispose of the rejected cookies After considerable research, Greg determined that he could sell live-edge coffee tables for an average of $1,100 each. In addition to the costs he had already incurred, he would also have the following costs per table: Sanding SSO Varnishing Cost of legs including installation Delivery Erin was one of the contacts that Greg had made in his research. She offered to buy all the cookies for a total of $56,700. Erin would pay any shipping costs incurred. Should Greg sell the cookies, or make them into tables? Focus E

Answer 1

The question requires to select one of the best option from two viz. Option 1: Make tablet from cookies and then sell them; option 2: Sell ​​​​​cookies as such to Erin.

The solution of the problem is as follows:

Solution- Ci) Summary of problem 1". Greg accepted to remove the tree from his neighbour's house in return of wood from the tree. He found 70 Cookies out of that. Greg paid $55,000 to arborist, $ 1400 [$100 pm x 14 months] for rent and $100 to dispose off seven useless cookies. Now, Greg has two options. [ Now he has 63 (70-7) Cookies in and option 1 Option 2 Set Make table from Sell cookies itself to Erin Cookies by incuming for $ 56,700 for all cookies. additional cost of $ 145/- per table & sell them $1100/- per table Greg has to select one option which is most beneficial to him. This can be done by calculating the total profit from each of option. Aption which would generate higher profit should be opted by Greg. UD Calculation of Profit : (A) option 1: Make table and sell them: Particular Workings Amount ($) $ 69,300 63 tables x 1.100 Sell value $ 7,560 (-) Cost of making 63 tables x 120" (-) cost of dispose of $ 100 - Cost of Cutting $ 55,000 (-) cost of Rent $100p.m. x 14 months $ 1,400 (-) cost of delivery 63 tables x 25 $ 1,575 Total Profit from sale $ 3,665 * cost of making of a single table: Scanding $ 50 varnishing $ 10 Cost of legs $ 60 + Total $ 120 Page 1 ATO. To.

($) [B] Option 2: Sell 63 Cookies to Evin! o Particular Workings sale proceeds E cost of cutting - Cast of Rent 100 X 14 e cost of disposing the useless Cookies Total Profit Amourt 56,700 55,000 1,400 loo 200 (iv) Final Reposit under option is see sell cook a Profit under options ie Make then sell = $3,665 b) Profit under option cisie sell cookies a $200 Since option I has higher profit as compare to option 2 there- for Greg should make tables from cookies and then Sell them. By doing this he will earn higher profit of $3465 [3665-200] as compare to getion 2 ie Sell cookies itself. - x x - - - Notes:- b Above solution is based on Total Profit Method, alternatively Incremental Profit Method can also be used. In such case cost of cutting, rent and disposing would be constant in both option. Incremetal profit would be calculated by = Sedarebiare incremental Sale proceeds (viz $ 69,300 or $ 56700) less Incremental Cost (viz $9135 (63x145) be verethod can in both cutting [Page 27