Answer:
Dominican Sugar Company
1. Differential Analysis as of March 24:
Raw Sugar Refined Sugar
Alternative 1 Alternative 2 Difference
Sales volume 42,000 33,600
Selling price per pound $1.40 $2.20
Sales revenue $58,800 $73,920 $15,120
Materials requirement 100,000 42,000
Output from process 42,000 33,600
Unit cost $0.35
Cost of materials $35,000 $35,000
Cost of further refining $21,000
Total costs $35,000 $56,000 ($21,000)
Net income $23,800 $17,920 ($5,880)
2. Based on cost implications, Dominican Sugar should not refine the raw sugar further. Further refining will cause the company $5,880 in lost income. This means that it costs more to refine the raw sugar.
Explanation:
a) Data and Calculations:
Raw Sugar Refined Sugar
Alternative 1 Alternative 2
Sales volume 42,000 33,600 (42,000/1.25)
Selling price per pound $1.40 $2.20
Sales revenue $58,800 $73,920
Materials requirement 100,000 42,000
Output from process 42,000 33,600 (42,000/1.25)
Unit cost $0.35
Cost of materials $35,000 $35,000
Cost of further refining $21,000 (42,000 * $0.50)
Total costs $35,000 $56,000
Net income $23,800 $17,920
