Question

The management of Dominican Sugar Company is considering whether to process further raw sugar into refined sugar. Refined sugar can be sold for $2.23 per pound, and raw sugar can be sold without further processing for $1.38 per pound. Raw sugar is produced in batches of 43,500 pounds by processing 100,000 pounds of sugar cane, which costs $0.33 per pound of cane. Refined sugar will require additional processing costs of $0.48 per pound of raw sugar, and 1.25 pounds of raw sugar will produce 1 pound of refined sugar.

	Required:
1.	Prepare a differential analysis as of March 24 to determine whether to sell raw sugar (Alternative 1) or process further into refined sugar (Alternative 2). Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter “0”. A colon (:) will automatically appear if required.
2.	Briefly report your recommendations.

Answer 1

	Differential Analysis
	Sell Raw Sugar (Alternative 1) or Process Further into Refined Sugar (Alternative 2)
	March 24
	Sell Raw Sugar	Process Further into Refined Sugar	Differential Effect
	(Alternative 1)	(Alternative 2)	(Alternative 2)
Revenues, per batch	60030	77604	17574
Cost, per batch	-33000	-53880	-20880
Income(loss), per batch	27030	23724	-3306
2
Dominican Sugar Company should not process raw sugar further to produce refined sugar, since profits would be reduced by $3306 per batch
Workings:
Sell Raw Sugar :
Revenues, per batch	=43500*1.38
Cost, per batch	=100000*0.33
Process Further:
Revenues, per batch	=(43500/1.25)*2.23
Cost, per batch	=33000+(43500*0.48)