Question

The management of Dominican Sugar Company is considering whether to process further raw sugar into refined sugar. Refined sugar can be sold for $2.20 per pound, and raw sugar can be sold without further processing for $1.40 per pound. Raw sugar is produced in batches of 42,000 pounds by processing 100,000 pounds of sugar cane, which costs $0.35 per pound of cane. Refined sugar will require additional processing costs of $0.50 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. 2. Briefly report your recommendations.

Answer 1

Incremental analysis (for a batch of 100000 pounds of sugar cane):
Incremental revenue from further processing:
Revenue from refined sugar (42000/1.25 *2.20)					73920
Less Reveue from Raw sugar (42000 popunds @ 1.40)					58800
Incremental revenue from further processing:						15120
Less: Incremental cost of further procesing						-21000
		(42000 pounds @ 0.50)
Incremental loss						-5880
Hence, No further processing to refined sugar shall be made.