Question

Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $52 to buy from farmers and $11 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 $22 or processed further for $13 to make the end product industrial fiber that is sold for $61. The beet juice can be sold as is for $43 or processed further for $26 to make the end product refined sugar that is sold for $61.

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

	Beet fiber	Beet Juice
Sales value after further processing	61	61
Costs of further processing	13	26
Benefit of further processing	48	35
Less: Sales value at split-off point	22	43
Net advantage (disadvantage)	26	-8
Revenue
Industrial fiber	61
Refined sugar	61
Total Revenue	122
Less: Expenses
Purchase from farmers	52
Crushing costs	11
Processing fiber further	13
Processing juice further	26
Total expenses	102
Net profit from one batch	20

Financial advantage for the company from processing one batch of sugar beets into the end products industrial fiber and refined sugar is 20$ per one batch