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vaieri [72.5K]
3 years ago
8

Differential Analysis for Further Processing

Business
1 answer:
ArbitrLikvidat [17]3 years ago
6 0

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

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Variable expenses      20000*8*1.25                          $200,000

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Net operating income                                                 $40,000

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