Question

Mae Refiners, Incorporated, processes sugar cane that it purchases from farmers. Sugar cane is processed in batches. A batch of sugar cane costs $60 to buy from farmers and $13 to crush in the company's plant. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $29 or processed further for $13 to make the end product industrial fiber that is sold for $61. The cane juice can be sold as is for $40 or processed further for $28 to make the end product molasses that is sold for $67. What is the financial advantage (disadvantage) for the company from processing one batch of sugar cane into the end products industrial fiber and molasses rather than not processing that batch at all

Answer 1

Answer:

The financial advantage is $ 14 per batch

Explanation:

The computation of the financial advantage or disadvantage is as follows:

Particulars                                    Cane Fiber            Cane Juice      

Sales Value after further processing  $61                  $67  

Less:      

Costs of further processing                 $13                  $28        

Benefit of Further processing             $48                 $39        

Less : Sales value at split off point      $29                  $40        

Net advantage (disadvantage)             $19                  ($1)

Now        

Revenue          

Industrial Fiber $61        

Refined Sugar $67        

Total revenue  $128        

Less : Expenses          

Purchases from Framers $60        

Crushing Costs $13        

Processing fiber further $13        

processing juice further $28        

Total Expenses  $114        

Net profit from one batch $14        

Hence, The financial advantage is $ 14 per batch