Question

Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $51 to buy from farmers and $10 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $21 or processed further for $11 to make the end product industrial fiber that is sold for $59. The beet juice can be sold as is for $42 or processed further for $24 to make the end product refined sugar that is sold for $59. What is the financial advantage (disadvantage) for the company from processing one batch of sugar beets into the end products industrial fiber and refined sugar rather than not processing that batch at all?

Answer 1

Answer:

Financial advantage of further processing = $22

Explanation:

As per the data given in the question,

Cost of batch = $51

Processing cost of batch = $10

Total cost of batch of sugar beets = $51 + $10 = $61

Sale of beet fiber without further processing = $21

Sale of juice fiber without further processing = $42

Total sale value =$21+$42 = $63

Cost of sugar beets = $61

Loss on sale without further processing = $63 - $61 = $2

Financial advantage :

Sale value = $59

Processing cost = $11

Incremental advantage = $59 - $11 = $48

Sale value of refined sugar = $59

Processing cost = $24

Incremental advantage = $59 - $24 = $35

Total Incremental advantage = $48 + $35 = $83

Total cost of beet sugar = $61

Financial advantage of further processing = $83 - $61 = $22

Hence, the batch of sugar beets would loss of $2 if not processed further but sold as beet fiber and beet juice.

The batch of sugar beets would earn a profit of $22 when processed further.