Question

Stinehelfer Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $59 to buy from farmers and $21 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 $35 or processed further for $27 to make the end product industrial fiber that is sold for $47. The beet juice can be sold as is for $55 or processed further for $35 to make the end product refined sugar that is sold for $81. What is the financial advantage (disadvantage) for the company from processing the intermediate product beet juice into refined sugar rather than selling it as is? Garrison 16e Rechecks 2017-12-15 Multiple Choice ($9) $60 ($42) $12

Answer 1

Answer:

Financial disadvantage from further processing = $(9)

Explanation:

A company should process further a product if the additional revenue from the split-off point is greater than than the further processing cost.  

Also note that all cost incurred up to the split-off point (the cost of crushing) are irrelevant to the decision to process further .  

                                                                                                  $

Sales revenue after crushing                                                55                          

Sales revenue at the split-off point                                        81

Additional sales revenue                                                       26

Further processing cost                                                         (35)

Net income after further processing                                     (9)

Financial disadvantage from further processing = $(9)

Kindly note that the allocated joint costs( cost of sugar and crushing) are irrelevant. This implies that whether or not the intermediate products are processed further the joint costs are irrelevant to the decision to process the beet juice further.