Nature's Grain Corporation Nature's Grain Corporation Grows Grain in Rural Areas of the Areas

Essay

Nature's Grain Corporation
Nature's Grain Corporation grows grain in rural areas of the South. The corporation's costs per bushel of grain (based on an average yield of 130 bushels per acre) follow:
Nature's Grain Corporation defines direct material costs as seed, fertilizer, water, and other chemicals. The variable overhead costs represent maintenance and repair costs of machinery. The fixed overhead costs are completely comprised of depreciation expense on machinery and real estate taxes.
Refer to Nature's Grain Corporation. Assume for this question only that the company decided to plant the grain. A local oil refiner has approached the company about converting the crop to grain alcohol (used to make gasohol) rather than selling the grain to the local grain elevator. If Nature's Grain converts the grain to alcohol, it will incur additional costs of $0.60 per bushel, and the company will be able to sell the crop to the oil refiner for the equivalent of $2.60 per bushel. Otherwise, the company can sell the grain crop to the local grain elevator for $1.85 per bushel. If Nature's Grain elects to sell the grain to the refinery, the company will not incur the variable selling costs. What should the company do? Support your answer with calculations.